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Chapter 15 - Independent Demand Inventory
15-1
1. Of the cost elements making up total inventory cost, which is the most difficult to
estimate?
Difficulty: Easy
2. The carrying cost for inventory consists of which cost components?
Difficulty: Easy
3. Unlike a requirements philosophy of inventory management, a replenishment philosophy:
Difficulty: Moderate
4. In a Q system, average inventory:
Difficulty: Moderate
Chapter 15 - Independent Demand Inventory
5. Capacity, as opposed to inventory:
Difficulty: Easy
6. Which cost is NOT part of inventory ordering costs?
Difficulty: Moderate
7. Which cost defines the cost of capital?
Difficulty: Hard
8. Which of the following statements is NOT true about managing inventory in supply
chains?
Chapter 15 - Independent Demand Inventory
9. Given that unit cost = $25, annual carrying charge = 10%, annual demand = 4000 units and
ordering cost = $15 per order, the EOQ is:
Difficulty: Hard
10. The total cost per year for question 9, assuming no stockouts, is approximately equal to:
Difficulty: Hard
11. A particular brand of soap has a lead time of three weeks to reorder, a weekly standard
deviation of ten units and a weekly average usage of 30 units. The reorder point for this soap,
assuming a 95% service level (z = 1.645), is:
Difficulty: Hard
12. Which of the following is NOT a purpose of inventory?
Chapter 15 - Independent Demand Inventory
15-4
13. A computerized inventory system checks inventory levels at the end of the week and
produces suggested orders for the coming week. What kind of system is this?
Difficulty: Easy
14. Transportation cost is an example of:
Difficulty: Moderate
15. Independent demand inventory consists of:
Difficulty: Moderate
16. Which of the following is NOT an assumption of the basic EOQ model?
Difficulty: Easy
Chapter 15 - Independent Demand Inventory
15-5
17. In the basic EOQ model, if annual demand and carrying costs double, the EOQ:
Difficulty: Moderate
18. Which of the following statements is true about a Q system?
Difficulty: Hard
19. A paint supplier that places orders for different colors of paint for delivery at the same
time should use a:
Difficulty: Moderate
20. ABC analysis requires that inventory be classified according to:
Difficulty: Moderate
Chapter 15 - Independent Demand Inventory
15-6
21. In the basic EOQ model, if the lead time doubles, the EOQ will:
Difficulty: Hard
22. The choice between P and Q systems should be based on:
Difficulty: Moderate
23. If the Economic Order Quantity for an item is 140, what is the average number of cycle
inventory units?
Difficulty: Moderate
24. Safety stock inventory is:
Difficulty: Moderate
25. Which of the following is correct?
Difficulty: Moderate
Chapter 15 - Independent Demand Inventory
15-7
26. At the Economic Order Quantity:
Difficulty: Easy
27. If the actual order quantity Q is much larger than the Economic Order Quantity:
Difficulty: Moderate
28. Service levels is:
Difficulty: Moderate
29. Demand for an item is 10 units per week and delivery lead time is 3 weeks. The safety
stock is known to be 11 units. Using a Q system, what is the reorder point (R)?
Difficulty: Moderate
30. Demand for an item is 20 units per week and delivery lead time is 2 weeks. The safety
stock is known to be 14 units. Using a P system, and assuming a P value of 3 weeks, what is
the target inventory level (T)?
Difficulty: Moderate
Chapter 15 - Independent Demand Inventory
15-8
31. Transit inventories are also referred to as pipeline inventories because they consist of
materials that are on their way from one point to another point in the supply chain.
Difficulty: Easy
32. Dependent demand items are subject to market forces and often have predictable demand
patterns.
Difficulty: Moderate
33. The average inventory level is defined as the difference between the cycle stock and the
safety stock.
Difficulty: Moderate
34. In general, it is extremely difficult to estimate stockout costs and hence we use the desired
service levels while computing the reorder points.
Difficulty: Easy
35. In an ABC Classification, it is logical to employ a periodic review system to monitor A
items.
Difficulty: Moderate
Chapter 15 - Independent Demand Inventory
15-9
36. The EOQ formula could be modified to express demand and the carrying rate on a
monthly basis.
Difficulty: Easy
37. Assuming that we are currently placing orders in EOQ amounts, an increase in the order
quantity would increase annual ordering costs.
Difficulty: Moderate
38. A decrease in an item's lead-time will increase the amount of safety stock required to
maintain a constant service level.
Difficulty: Moderate
39. Lincoln Machine Tool Company maintains an inventory pool consisting of 10 items.
Each of these items has a unique demand pattern and may require a different kind of
inventory management system. The annual demand pattern and the unit cost of these items are
given in the following table. Conduct an ABC inventory analysis and classify these items into
A, B, and C type of inventories. Suggest suitable methods for managing these three distinct
types of inventories.
Item
Unit cost
Annual usage (in units)
1
$1.50
5000
2
$8.00
1500
3
$10.50
10,000
4
$2.00
6000
5
$0.50
7500
6
$13.60
6000
7
$0.75
5000
8
$1.25
4500
9
$2.50
7000
10
$2.00
3000
Chapter 15 - Independent Demand Inventory
15-10
Chapter 15 - Independent Demand Inventory
15-11
Difficulty: Moderate
