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Indicate whether the statement is true or false.
1. Single-period inventory models are used in situations involving items that can be carried in inventory and sold in future
periods.
a. True
b. False
2. Radio-frequency identification (RFID) chips allow firms to track individual containers.
a. True
b. False
3. In the Pareto Principle, a vital few control a high percentage of the wealth.
a. True
b. False
4. In a fixed-order-quantity system, when demand is uncertain, using economic order quantity (EOQ) based only on the
average demand will result in a low probability of a stockout.
a. True
b. False
5. In the context of using technology to manage inventories, radio-frequency identification (RFID) chips offer an accuracy
of less than 70 percent.
a. True
b. False
6. The single-period inventory model applies to inventory situations where demand is uncertain.
a. True
b. False
7. Marketing and operations prefer high inventory levels, whereas finance would prefer small inventories.
a. True
b. False
8. Setup costs include costs associated with maintaining storage facilities, such as gas and electricity, taxes, and insurance.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
9. Brenda is the owner of a spa store that operates 50 weeks per year. Spair Shampoo is a high margin stock keeping unit
(SKU), but the product goes out of stock frequently. She decides to use a fixed-quantity system (FQS) and orders boxes of
Spair Shampoo containing 10 bottles per box from a vendor 160 miles away. She collects the following data with respect
to the sales of Spair Shampoo.
Demand 10 boxes per week
Order Cost $40 per order
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Item Cost $80 per box per year
Inventory-Holding Cost 15 percent per year
Lead Time 3 weeks
Standard Deviation in Weekly Demand 6
Service Level 96 percent
Using the given data, it can be concluded that the economic order quantity (EOQ) of the Spair Shampoo boxes is:
a. less than 25 boxes.
b. more than 25 but less than or equal to 35 boxes.
c. more than 35 but less than or equal to 45 boxes.
d. more than 55 boxes.
10. Using the data regarding the inventory management of a stock-keeping unit shown in the following table, it can be
concluded that the economic time interval for establishing an optimal policy for a fixed-period system (FPS) under the
model assumptions is:
Demand 12,000 units per year
Order Cost $50 per order
Inventory-Holding Cost $0.5 per unit per year
Lead Time 2 weeks
Standard Deviation in Weekly Demand 7
Service Level 95 percent
a. less than or equal to 3 weeks.
b. more than 3 weeks but less than or equal to 6 weeks.
c. more than 6 weeks but less than or equal to 9 weeks.
d. more than 9 weeks.
11. In the context of ABC inventory analysis, which of the following statements is true of class A items?
a. They require close control by operations managers.
b. They comprise less than 30 percent of the total dollar usage.
c. They can be managed using automated computer systems.
d. They account for more than 50 percent of inventory items.
12. A single-period inventory problem can be solved using a technique called _____ analysis.
a. marginal economic
b. total cost
c. critical value
d. reorder point
13. In the context of inventory costs, _____ costs are incurred as a result of the work involved in configuring tools,
equipment, and machines within a factory to produce an item.
a. setup
b. holding
c. stockout
d. unit
14. _____ applies to inventory situations in which one order is placed for a good in anticipation of a future selling season
where demand is uncertain.
a. A fixed-period inventory system
b. A fixed-quantity inventory system
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c. The deliver-lag inventory model
d. The single-period inventory model
15. The demand for bread in Ahoma City ranges from 100 to 120 tons per day, every day of the year. The demand is
easily satisfied on a daily basis. This demand for bread can be categorized as _____ demand.
a. static
b. overfull
c. unwholesome
d. dynamic
16. CraftWare Inc., a furniture manufacturer, uses ABC analysis to define its inventory value. The inventory contains
wood, cast iron, adhesive, and carbon fiber. If wood accounts for 50 percent of the items and 5 percent of the total dollar
value; carbon fiber accounts for 10 percent of the items and 60 percent of the total dollar value; cast iron accounts for 25
percent of the items and 18 percent of the total dollar value; and adhesive accounts for 15 percent of the items and 17
percent of the total dollar value, _____ can be classified as a class C item.
a. wood
b. carbon fiber
c. cast iron
d. adhesive
17. _____ inventory consists of partially completed products in various stages of completion that are awaiting further
processing.
a. Raw materials
b. Work-in-process
c. Finished-goods
d. Safety stock
18. Vision Toys uses a fixed-quantity system to manage its inventories. The inventory includes plastic and LED bulbs. It
was observed that the company often faces stockout of plastic. The average weekly demand for plastic is 100 pounds, and
historical data show that the standard deviation of weekly demand is about 7. The lead time from the plastic supplier is 2
weeks. If the company’s acceptable service level is 95 percent and the number of standard deviations necessary to achieve
the acceptable service level is 1.645, the reorder point for plastic with safety stock is:
a. less than or equal to 125 pounds.
b. more than 125 pounds but less than or equal to 175 pounds.
c. more than 175 pounds but less than or equal to 225 pounds.
d. more than 225 pounds.
19. In the context of fixed-quantity systems, _____ is defined as the on-hand quantity (OH) plus any orders placed but
which have not arrived minus any backorders (BO).
a. inventory position
b. the reorder point
c. a stock-keeping unit
d. work-in-process inventory
20. Stable demand is usually called _____ demand.
a. static
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c. unwholesome
d. dynamic
21. In the context of ABC inventory analysis, which of the following statements is true of class C items?
a. They require close control by operations managers.
b. They comprise more than 80 percent of the total dollar usage.
c. They can be managed using automated computer systems.
d. They make up less than 10 percent of inventory items.
22. The demand for trains between Marshdell and Deepbarrow varies throughout the year. The demand reaches its peak in
summer and drops during winter. This demand for trains can be categorized as _____ demand.
a. static
b. overfull
c. unwholesome
d. dynamic
23. In the context of managing inventories in supply chains, _____ is the time between placement of an order and its
receipt.
a. the lead time
b. a time series
c. the changeover time
d. a time horizon
24. Which of the following statements is true of a fixed-period system (FPS)?
a. It orders a fixed quantity of items when the inventory position reaches or drops below the reorder point (r).
b. It orders sufficient stock at the time of review to bring the inventory position up to the replenishment level (M).
c. It maintains a constant order quantity every review period.
d. It checks the inventory position on a continuous basis.
25. Net Steels is a steel manufacturing company. It orders 180 metric tons of raw material per order. It was observed that
the company often faces stockout. To tackle this issue, the company incorporated a fixed-quantity system (FQS) and
collected the following data.
Demand 11,000 metric tons per year
Order Cost $18,000 per order
Item Cost $36,000 per year
Inventory-Holding Cost 20 percent per year
Using the data, Net Steels determined that the economic order quantity (EOQ) should be 235 metric tons. In this scenario,
the annual amount that Net Steels can save by ordering as per the EOQ instead of its conventional order is:
a. less than $45,000.
b. more than $45,000 but less than or equal to $55,000.
c. more than $55,000 but less than or equal to $65,000.
d. more than $65,000.
26. Using the data regarding the inventory management of a stock-keeping unit shown in the following table, it can be
concluded that the optimal replenishment level without any safety stock for a fixed-period system (FPS) under the model
assumptions is:
Demand 100 units per week
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Order Cost $30 per order
Inventory-Holding Cost $0.6 per unit per year
Lead Time 2 weeks
Economic Time Interval 5 weeks
a. more than 100 but less than or equal to 200 units.
b. more than 200 but less than or equal to 400 units.
c. more than 400 but less than or equal to 600 units.
d. more than 600 but less than or equal to 800 units.
27. Which of the following statements is true of backorders?
a. They occur as a result of excessive stock.
b. They occur when a customer is unwilling to wait for an ordered item.
c. They result in additional costs.
d. They force a customer to purchase elsewhere.
28. Jae’s Shoes is considering a change of their current inventory control system for sneakers. The information regarding
the neckties is: Demand = 1000 pairs/week; Lead time = 3 weeks; Order cost = $20/order; Holding cost = $10.00/pair/yr;
Cycle service level = 95%; Standard deviation of weekly demand = 48; and Number of weeks per year = 52. To calculate
the relative frequency use the following values: _____.
a. Number of Days and Standard Deviation of Weekly Demand
b. Units Sold and Demand
c. Units Sold and Number of Days
d. Lead Time and Holding Cost
29. In the context of inventory costs, _____ costs can reflect backorders or service interruptions for external customers.
a. holding
b. stockout
c. ordering
d. setup
30. Which of the following statements is true of the independent demand for a stock-keeping unit (SKU)?
a. It needs to be calculated using the forecast of dependent demand.
b. It is affected by the demand of other SKUs.
c. It is directly related to the demand of raw materials.
d. It needs to be forecasted.
31. In the context of a fixed-order-quantity system, stockouts occur whenever the lead-time demand _____.
a. exceeds the reorder point
b. exceeds the work-in-process inventory
c. becomes equal to the finished-goods inventory
d. becomes equal to the break-even point
32. _____ inventory is inventory that results from purchasing or producing in larger lots than are needed for immediate
consumption or sale.
a. Finished-goods
b. Stockout
c. Cycle
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d. Work-in-process
33. A buyer for a department store orders sweaters about 6 months before the winter season. The store plans to hold a
March clearance sale to sell any surplus goods by February 29. Each piece costs $100 per pair and sells for $120 per pair.
At the sale price of $60 per pair, it is expected that any remaining stock can be sold during the March sale. Assume that a
uniform probability distribution ranging from 250 to 450 items describes the demand. The expected demand is 300. In the
context of the single period inventory system, the optimal order size Q must satisfy the condition _____.
a. P(demand ≤ Q*) = 1/2
b. P(demand ≤ Q*) = 1/3
c. P(demand ≤ Q*) = 1/4
d. P(demand ≤ Q*) = 1/5
34. Using the data regarding the inventory management of a stock-keeping unit shown in the following table, it can be
concluded that the optimal replenishment level with safety stock for a fixed-period system (FPS) under the model
assumptions is:
Demand 140 units per week
Order Cost $30 per order
Inventory-Holding Cost $0.4 per unit per year
Lead Time 3 weeks
Economic Time Interval 7 weeks
Standard Deviation in Weekly Demand 8
Acceptable Service Level 95 percent
Standard Deviations to Achieve the Acceptable Service Level 1.645
a. more than 1,350 but less than 1,550 units.
b. more than 1,550 but less than 1,650 units.
c. more than 1,650 but less than 1,750 units.
d. more than 1,750 but less than 1,850 units.
35. _____ inventory is an additional amount of inventory that is kept over and above the average amount required to meet
demand.
a. Seasonal
b. Work-in-process
c. Finished-goods
d. Safety stock
36. In the context of inventory costs, _____ costs can reflect lost sales for external customers or costs associated with
interruptions to assembly lines for internal customers.
a. holding
b. stockout
c. ordering
d. setup
37. In the context of inventory management, a(n) _____ is a single item or asset stored at a particular location.
a. stock-keeping unit
b. make-to-stock product
c. average lead stock
d. buffer stock
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38. Based on the constant demand assumption in the economic order quantity (EOQ) model, the average cycle inventory
is:
a. the order quantity divided by the number of inventory cycles per year.
b. the annual demand divided by the number of inventory cycles per year.
c. half of the order quantity.
d. half of the annual usage.
39. Jae’s Shoes is considering a change of their current inventory control system for sneakers. The information regarding
the neckties is: Demand = 1000 pairs/week; Lead time = 3 weeks; Order cost = $20/order; Holding cost = $10.00/pair/yr;
Cycle service level = 95%; Standard deviation of weekly demand = 48; and Number of weeks per year = 52. To calculate
the relative frequency use the following values: _____.
a. Number of Days and Standard Deviation of Weekly Demand
b. Units Sold and Demand
c. Units Sold and Number of Days
d. Lead Time and Holding Cost
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Answer Key
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