Entrepreneurship and Effective Small Business Management, 11e (Scarborough)
Chapter 19 Supply Chain Management
1) The primary objective of the purchasing function is to:
A) ensure an adequate turnover of merchandise.
B) acquire enough stock to ensure uninterrupted sales or production.
C) determine the “best” possible price for both supplies and finished products.
D) maximize carrying and set-up costs for the firm.
Topic: Creating a Purchasing Plan
AACSB: Analytic Skills
2) The small company’s purchasing plan is closely linked to which of the other functional areas?
A) Marketing and sales
B) Finance and accounting
C) Production and engineering
D) All of the above
Topic: Creating a Purchasing Plan
AACSB: Analytic Skills
3) Managers have discovered that a quality approach to doing business:
A) is much more expensive than a nonquality focus, but worth it.
B) can lower employee turnover, increase market share, and decrease costs.
C) is easier to achieve than expected when TQM is implemented in an existing business.
D) works in manufacturing but is not applicable to the purchasing process.
Topic: Quality
AACSB: Reflective Thinking
4) Total Quality Management (TQM):
A) defines world-class quality as 95% defect-free products and services.
B) has been implemented by about 90% of all American manufacturers and is now moving into
the service industry.
C) relies on an army of quality inspectors to ensure that products and services meet quality
targets.
D) is a lifelong process of continuous improvement that focuses on doing the job right the first
time.
Topic: Total Quality Management
AACSB: Analytic Skills
1
5) As a solution to a company’s quality problems, managers will find that TQM:
A) may be implemented without significant training of employees.
B) takes 3-4 years to bring about a significant change in quality.
C) techniques can be implemented piecemeal, one at a time.
D) creates little turmoil or change in the way a company does most of its business.
Topic: Total Quality Management
AACSB: Analytic Skills
6) Research on the implementation of TQM programs shows that it takes ________ to
completely implement a TQM program.
A) three to four years
B) eight to ten years
C) six months to two years
D) one to three years
Topic: Total Quality Management
AACSB: Analytic Skills
7) A small business owner needs to do which of the following well in order to successfully
implement a TQM program?
A) Focus on production and manufacturing
B) Set a “finishing line” for the quality effort
C) Move from a management-driven to team-driven company culture
D) Modify the rewards program to reward individual effort and innovation
Topic: Total Quality Management
AACSB: Reflective Thinking
8) Successful Total Quality Management (TQM) requires:
A) training employees in the use of the tools of statistical quality control.
B) directive management, providing clear quality direction.
C) thorough and complete quality inspections.
D) holding middle management responsible for the results.
Topic: Total Quality Management
AACSB: Analytic Skills
2
9) Quality improvement efforts must ultimately focus on:
A) the product.
B) the customer.
C) the manufacturing process.
D) the purchasing process.
Topic: Total Quality Management
AACSB: Analytic Skills
10) TQM:
A) instills the philosophy of 100% inspection of all products.
B) provides a “finish line” for the race for quality.
C) avoids placing blame and focuses on fixing mistakes.
D) makes middle managers responsible for product quality.
Topic: Total Quality Management
AACSB: Analytic Skills
11) Critical to TQM is:
A) management competence.
B) understanding the product.
C) continual improvement.
D) knowing your competition.
Topic: Total Quality Management
AACSB: Analytic Skills
12) Successful implementation of TQM involves:
A) modification in the operational culture.
B) work process.
C) Both A and B
D) Neither A nor B
Topic: Total Quality Management
AACSB: Analytic Skills
3
13) Deming’s 14 Points include:
A) awarding business to suppliers on the basis of the best price.
B) correcting defects at the end of the production process.
C) establishing production quotas.
D) adopting a total quality philosophy.
Topic: Deming’s 14 Points
AACSB: Analytic Skills
14) The implementation of TQM cannot succeed unless:
A) the company is willing to undergo immediate radical transformation of all of its processes.
B) the company has extensive market research on its markets, competitors, and customers.
C) it is fully supported by upper management and has the involvement of the CEO.
D) the lowest level of employees is willing to implement the program from the very beginning.
Topic: Deming’s 14 Points
AACSB: Analytic Skills
15) A danger of an excessive investment in inventory for the small business is:
A) excessive inventory taxes by local and state government.
B) minimizing reordering costs.
C) creating too quick a turnover of inventory.
D) tying up an excessive amount of the firm’s capital.
Topic: Quantity: The Economic Order Quantity (EOQ)
AACSB: Analytic Skills
16) Which of the following represents the cost of the units in the basic EOQ model?
A) Q/2 × H
B) D × C
C) D/Q × S
D) (L × U) + S
Topic: Cost of Units
AACSB: Analytic Skills
4
17) A small manufacturer of candles forecasts demand for upcoming year to be 20,000 which
costs the company $1.00 plus $0.10 for packaging and shipping per candle which the company
pays. The total annual cost of units is:
A) $20,000.00.
B) $20,000.10.
C) $2,000.00.
D) $22,000.00.
Topic: Cost of Units
AACSB: Reflective Thinking
18) Holding or carrying costs include the costs of:
A) ordering materials and inventory.
B) receiving and inspecting items and all administrative costs.
C) insurance, taxes, depreciation, etc.
D) processing a purchase order.
Topic: Holding (Carrying) Costs
AACSB: Analytic Skills
19) The formula for calculating the cost of carrying inventory is:
A) Q/2 × H.
B) D × C.
C) D/Q × S.
D) Q/H × S.
Topic: Holding (Carrying) Costs
AACSB: Analytic Skills
20) ________ is (are) one of the elements of the total inventory costs.
A) Demand
B) Set-up costs
C) Standing costs
D) Safety stock
Topic: Setup (Ordering) Costs
AACSB: Analytic Skills
5
Use the information below to answer the following questions:
Albemarle Sprinkler Company purchases the sprinkler heads for its line of lawn sprinklers from
a supplier. Albemarle’s production manager wonders how many sprinkler heads she should order
for the next six months. The company’s marketing manager forecasts sales to be 29,400 units for
the upcoming six months. The purchasing manager has negotiated a price of $6.47 per head. The
production manager estimates that it costs $17.25 to place an order with the supplier and $2.97 to
store a sprinkler head in inventory for six months.
21) What is Albemarle’s Economic Order Quantity (EOQ) for the upcoming six months?
A) 292 heads
B) 358 heads
C) 396 heads
D) 584 heads
Topic: Quantity: The Economic Order Quantity (EOQ)
AACSB: Reflective Thinking
22) Approximately how many orders will Albemarle place over the next six months if it uses the
EOQ point?
A) 28
B) 50
C) 74
D) 82
Topic: Quantity: The Economic Order Quantity (EOQ)
AACSB: Reflective Thinking
23) What is Albemarle’s total inventory cost using the EOQ point?
A) $191,954
B) $192,388
C) $192,166
D) $192,087
Topic: Quantity: The Economic Order Quantity (EOQ)
AACSB: Reflective Thinking
6
24) The Economic Order Quantity assumes:
A) a 30-day cycle in filling orders.
B) orders are filled instantaneously.
C) usage will impact delivery time.
D) None of these things
Topic: The Economic Order Quantity with Usage
AACSB: Analytic Skills
25) When shopping for a vendor, a small business owner should seek:
A) the best transfer of risk possible.
B) the lowest price.
C) the best price at acceptable quality.
D) to change vendors often in order to get the lowest price.
Topic: Price
AACSB: Analytic Skills
26) A key element to Deming’s 14 Points is:
A) ordering on the basis of price.
B) changing suppliers frequently.
C) conducting frequent quality inspections.
D) developing long-term relationships with vendors.
Topic: Price
AACSB: Analytic Skills
27) Trade discounts are offered on the basis of the:
A) size of the order.
B) position of the business in the distribution channel.
C) time of payment.
D) type of payment.
Topic: Trade Discounts
AACSB: Analytic Skills
7
28) ________ discounts are normally set up on a graduated scale and are based on a firm’s
position in the channel of distribution and on the functions it performs in that channel.
A) Trade
B) Quantity
C) Cash
D) Cumulative
Topic: Trade Discounts
AACSB: Analytic Skills
29) The table below is an example of a ________ discount.
Order Size Price
1–1,000 units List Price
1,001–5,000 units List Price–3%
5,001–10,000 units List Price–6%
10,001 & over List Price–10%
A) trade
B) quantity
C) cash
D) cumulative
Topic: Quantity Discounts
AACSB: Reflective Thinking
30) ________ discounts give customers an incentive to pay for merchandise promptly.
A) Trade
B) Quantity
C) Cash
D) Cumulative
Topic: Cash Discounts
AACSB: Analytic Skills
31) Small business people need to remember that:
A) there is an implicit cost of forgoing a cash discount.
B) they should avoid cash discounts.
C) by forgoing cash discounts they have more money for daily expenses.
D) cash discounts have hidden annual interest rates.
Topic: Cash Discounts
AACSB: Analytic Skills
8
32) The reorder point model requires that the small business owner know:
A) the usage rate, the minimum level of stock, the lead time, and the EOQ.
B) who the supplier is, statistical process controls, and TQM.
C) the demand pattern for the product, reliability and proximity of the supplier, and who has title.
D) holding costs for the product, the usage rate, and the three “Cs” of the product.
Topic: Timing: When to Order
AACSB: Analytic Skills
33) The small business owner needs to know ________ in order to avoid stockouts and calculate
safety stock.
A) the EOQ
B) the lead time
C) the minimum level of stock allowable
D) the usage rate
Topic: Timing: When to Order
AACSB: Analytic Skills
34) A firm’s reorder point for an item takes into consideration its ________, which is the
difference between the time an order is placed and the time it is actually received.
A) minimum level of stock allowable
B) EOQ
C) usage rate
D) lead time
Topic: Timing: When to Order
AACSB: Reflective Thinking
35) Many small businesses build a(n) ________, or cushion, into their inventories in case
demand runs ahead of the anticipated usage rate.
A) safety stock
B) lead time
C) EOQ
D) stockout point
Topic: Timing: When to Order
AACSB: Analytic Skills
9
36) The formula for calculating the reorder point of a product is:
A) Q/2 × H.
B) D × C.
C) D/Q × S.
D) (L × U) + S.
Topic: Timing: When to Order
AACSB: Analytic Skills
37) The basic reorder point model assumes that:
A) the firm’s inventory usage rate is constant.
B) the lead time varies.
C) safety stock is set at 5%.
D) the demand pattern is constant.
Topic: Timing: When to Order
AACSB: Analytic Skills
38) A company whose reorder point model includes a 95% desired service level will experience
stockouts ________% of the time.
A) 1
B) 5
C) 50
D) 95
Topic: Timing: When to Order
AACSB: Reflective Thinking
39) The consequences for the small business owner of a vendor certification program include:
A) using one supplier for the majority of their inventory needs.
B) guaranteed quality and price for selected items.
C) that the vendor will not supply components to competitors.
D) less government scrutiny and regulation of their business.
Topic: Vendor Certification
AACSB: Analytic Skills
10