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TEST BANK
CHAPTER 8: INVENTORY MANAGEMENT
Multiple Choice Questions (correct answers are bolded)
1. ___________ refers to stocks of goods and materials that are maintained for many purposes,
the most common being to satisfy normal demand patterns.
2. Holding high levels of inventory results in ___________ inventory carrying costs and
___________ stockout costs.
3. Holding low levels of inventory results in ___________ inventory carrying costs and
___________ stockout costs.
4. ___________ stock refers to inventory that is needed to satisfy normal demand during the
course of an order cycle.
5. ___________ stock refers to inventory that is held in addition to cycle stock to guard against
uncertainty in demand and/or lead time.
6. Another name for safety stock is ___________ stock.
7. ___________ stock refers to inventory that is en route between various nodes in a logistics
system.
8. ___________ stock refers to inventory that is held for several reasons, to include seasonal
demand, projected price increases, and potential shortages of product.
9. ___________ stock is carried to stimulate demand.
10. Inventory costs in the United States in the twenty-first century represent approximately
___________ of total logistics costs.
11. Which of the following statements if false?
12. Inventory carrying costs in the United States since 2010 have ranged between ___________
and ___________ percent.
13. Inventory shrinkage ___________.
14. Each of the following is a component of inventory carrying cost except:
15. In the United States, ___________ has traditionally provided a convenient starting point
when estimating the interest charges associated with maintaining inventory.
16. Which of the following costs is not a component of ordering (order) costs?
17. Which of the following situations is likely the most damaging (costly) with respect to a
stockout?
5
18. Which of the following statements is false?
19. With respect to determining the average cost of a stockout, the higher the probability of a
delayed sale, the ___________ the average stockout costs and the ___________ the inventory
that needs to be held.
20. Under conditions of certainty, a reorder point is equal to ___________.
21. The economic order quantity (EOQ) deals with calculating the proper order size with respect
to ___________ costs and ___________ costs.
6
22. The economic order quantity (EOQ) determines ___________.
23. Which of the following is not an assumption associated with the basic economic order
quantity (EOQ) model?
24. Concerning the EOQ model, if demand or annual usage increases by 10 percent, then the
EOQ will ___________.
25. Concerning the EOQ model, if the ordering costs increase by 10 percent and the product
value increases by 10 percent, then the EOQ will ___________.
26. Inventory flow diagrams illustrate that safety stock can prevent two problem areas,
___________ and ___________.
Category 3: Analytical thinking]
27. ___________ recognizes that all inventories are not of equal value to a firm and thus all
inventories should not be managed in the same way.
28. ABC analysis of inventory ___________.
29. Dead inventory (dead stock) refers to a product for which there are no sales during a
___________-month period.
30. All of the following are suggestions for dealing with dead stock (inventory) except:
31. ___________ refers to the number of times inventory is sold in a one-year period.
32. Inventory turnover can be calculated by ___________.
33. ___________ items refer to those that are used or distributed together.
34. ___________ products refer to those that customers view as being able to fill the same need
or want as another product.
9
35. Which of the following is not an example of a lean inventory approach?
36. Which of the following statements about the lean approach and just-in-time (JIT) is false?
37. Efficient consumer response (ECR) tends to focus on ___________.
38. Which of the following statements about service parts logistics is false?
39. Under ___________, the size and timing of replenishment orders are the responsibility of the
manufacturer.
40. Which of the following statements about vendor-managed inventory (VMI) is false?
True-False Questions
[LO: Beginning of chapter material; Easy; Concept; AACSB Category 3: Analytical thinking]
2. Different organizational functions, such as marketing and production, tend to have similar
[LO: Beginning of chapter material; Moderate; Synthesis; AACSB Category 3: Analytical
thinking]
3. Inventory carries its greatest costs after value has been added through manufacturing and
[LO: Beginning of chapter material; Moderate; Synthesis; AACSB Category 3: Analytical
thinking]
[LO 8.1: To learn about the ways that inventory can be classified; Moderate; Concept; AACSB
Category 3: Analytical thinking]
5. Safety stock refers to inventory that is held in addition to cycle stock to guard against
11
[LO 8.1: To learn about the ways that inventory can be classified; Easy; Concept; AACSB
Category 3: Analytical thinking]
6. Pipeline stock is inventory that is en route between various fixed facilities in a logistics
[LO 8.1: To learn about the ways that inventory can be classified; Easy; Concept; AACSB
Category 3: Analytical thinking]
[LO 8.1: To learn about the ways that inventory can be classified; Moderate; Synthesis; AACSB
Category 3: Analytical thinking]
8. Inventory tends to be one of the largest assets (in terms of dollar value) on a company’s
[LO 8.2: To discuss inventory costs and the trade-offs that exist among them; Easy; Synthesis;
AACSB Category 3: Analytical thinking]
9. As a general rule, companies prefer to carry less inventory as the carrying cost percentage
[LO 8.2: To discuss inventory costs and the trade-offs that exist among them; Moderate;
Synthesis; AACSB Category 3: Analytical thinking]
[LO 8.2 To discuss inventory costs and the trade-offs that exist among them; Moderate; Concept;
AACSB Category 3: Analytical thinking]
[LO 8.2: To discuss inventory costs and the trade-offs that exist among them; Moderate;
Application; AACSB Category 3: Analytical thinking]
12. The trade-off that exists between carrying costs and ordering costs is that they respond in
[LO 8.2: To discuss inventory costs and the trade-offs that exist among them; Moderate;
Synthesis; AACSB Category 3: Analytical thinking]
13. Not having enough items in inventory can be as bad as, and sometimes worse than, having
[LO 8.2: To discuss inventory costs and the trade-offs that exist among them; Moderate;
Synthesis; AACSB Category 3: Analytical thinking]
14. The higher the average cost of a stockout, the more likely a company is going to want to hold
[LO 8.2: To discuss inventory costs and the trade-offs that exist among them; Moderate;
Application; AACSB Category 3: Analytical thinking]
15. A reorder point is equal to average daily demand divided by the length of the replenishment
[LO 8.3: To identify when to order and how much to order, with a particular emphasis on the
economic order quantity; Moderate; Application; AACSB Category 3: Analytical thinking]
16. One requirement of a fixed order quantity system is that the inventory must be constantly
[LO 8.3: To identify when to order and how much to order, with a particular emphasis on the
economic order quantity; Moderate; Synthesis; AACSB Category 3: Analytical thinking]
17. A fixed order quantity system is more susceptible to stockouts than is a fixed order interval
[LO 8.3: To identify when to order and how much to order, with a particular emphasis on the
economic order quantity; Moderate; Synthesis; AACSB Category 3: Analytical thinking]
18. The economy order quantity (EOQ) is the point at which carrying costs equal ordering costs.
[LO 8.3: To identify when to order and how much to order, with a particular emphasis on the
economic order quantity; Easy; Concept; AACSB Category 3: Analytical thinking
19. One assumption of the basic economy order quantity (EOQ) model is a continuous, constant,
[LO 8.3: To identify when to order and how much to order, with a particular emphasis on the
economic order quantity; Moderate; Synthesis; AACSB Category 3: Analytical thinking]
20. The economy order quantity (EOQ) can only be calculated with respect to the number of
[LO 8.3: To identify when to order and how much to order, with a particular emphasis on the
economic order quantity; Moderate; Application; AACSB Category 3: Analytical thinking
21. The economy order quantity (EOQ) cannot be modified to account for one or more
[LO 8.3: To identify when to order and how much to order, with a particular emphasis on the
economic order quantity; Moderate; Synthesis; AACSB Category 3: Analytical thinking]
22. Inventory flow diagrams graphically depict the demand for, and replenishment of, inventory.
[LO 8.4: To differentiate the various inventory flow patterns; Easy; Concept; AACSB Category
3: Analytical thinking]
23. Safety stock can prevent against two problem areas: an increased rate of demand and longer-
[LO 8.4: To differentiate the various inventory flow patterns; Moderate; Synthesis; AACSB
Category 3: Analytical thinking]
[LO 8.5: To discuss special concerns with inventory management; Easy; Application; AACSB
Category 3: Analytical thinking]
25. In terms of ABC analysis of inventory, no more than 25 percent of items should be classified
[LO 8.5: Inventory management: special concerns; Moderate; Application; AACSB Category 3:
Analytical thinking]
26. Dead stock (inventory) refers to product for which there are no sales during a six-month
[LO 8.5: To discuss special concerns with inventory management; Moderate; Concept; AACSB
Category 3: Analytical thinking]
27. One way of dealing with dead stock (inventory) is for companies to simply throw it away.
[LO 8.5: To discuss special concerns with inventory management; Moderate; Synthesis;
AACSB Category 3: Analytical thinking]
28. The number of times that inventory is sold in one year is referred to as average inventory.
[LO 8.5: To discuss special concerns with inventory management; Moderate; Concept; AACSB
Category 3: Analytical thinking]
29. Inventory turnover can be calculated by dividing cost of goods sold by average inventory.
14
[LO 8.5: To discuss special concerns with inventory management; Moderate; Application;
AACSB Category 3: Analytical thinking]
30. High inventory turnover indicates that a company is taking longer to sell its inventory.
[LO 8.5: To discuss special concerns with inventory management; Moderate; Application;
AACSB Category 3: Analytical thinking]
31. Complementary products can be defined as inventories that can be used or distributed
[LO 8.5: To discuss special concerns with inventory management; Easy; Concept; AACSB
Category 3: Analytical thinking]
32. Many grocery chains target in-stock rates of 90 percent for individual stores so that sufficient
substitutes exist for a customer to purchase a substitute item rather than go to a competing
[LO 8.5: To discuss special concerns with inventory management; Moderate; Application;
AACSB Category 3: Analytical thinking]
[LO 8.6: To identify several contemporary approaches to managing inventory; Easy;
Application; AACSB Concept 3: Analytical thinking]
34. Because of smaller, more frequent orders and closer supplier location, trucking tends to be an
[LO 8.6: To identify several contemporary approaches to managing inventory; Moderate;
Synthesis; AACSB Concept 3: Analytical thinking]
35. Efficient consumer response (ECR) and collaborative planning, forecasting, and
[LO 8.6: To identify several contemporary approaches to managing inventory; Moderate;
Application; AACSB Concept 3: Analytical thinking]
36. A confluence of events, such as increasing global sourcing, suggests that organizations
should carefully consider the potential trade-offs before adopting a lean inventory
[LO 8.6: To identify several contemporary approaches to managing inventory; Moderate;
Synthesis; AACSB Concept 3: Analytical thinking]
15
[LO 8.6: To identify several contemporary approaches to managing inventory; Moderate;
Synthesis; AACSB Concept 3: Analytical thinking]
38. One logistical challenge with service parts logistics is that it can be extremely difficult to
[LO 8.6: To identify several contemporary approaches to managing inventory; Moderate;
Synthesis; AACSB Concept 3: Analytical thinking]
39. In vendor-managed inventory, the size and timing of replenishment orders are the
[LO 8.6: To identify several contemporary approaches to managing inventory; Moderate;
Application; AACSB Concept 3: Analytical thinking]
40. Vendor-managed inventory can only be applied to consumer, and not industrial, products.
[LO 8.6: To identify several contemporary approaches to managing inventory; Moderate;
Synthesis; AACSB Concept 3: Analytical thinking]
