Operations management stevenson 11th edition test bank ch13

Determine: A The economic order quantity B The total cost of carrying the cloths excluding purchase price C The average inventory... What order quantity would you use if the objective is

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8 DVD recorders would be an example of independent demand items

13 The A-B-C approach involves classifying inventory items by unit cost, with expensive items classified as

‘A' items and low cost items classified as ‘C' items

True False

14 An inventory buffer adds value and lowers cost in all supply chains

True False

15 In the A-B-C approach, C items typically represent about 15 percent of the number of items, but 60 percent

of the dollar usage

True False

16 EOQ inventory models are basically concerned with the timing of orders

True False

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17 The average inventory level is inversely related to order size

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26 In the quantity discount model, the optimum quantity will always be found on the lowest total cost curve True False

27 ROP models indicate to managers the time between orders

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36 In the fixed-order interval model, the order size is the same for each order

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45 When the item is offered for resale, shortage costs in the single-period model can include a charge for loss

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54 The cycle time represents the time between reorder point and receipt of order

60 Which of the following is not one of the assumptions of the basic EOQ model?

A Annual demand requirements are known and constant

B Lead time does not vary

C Each order is received in a single delivery

D Quantity discounts are available

E All of the above are necessary assumptions

61 Which of the following interactions with vendors would potentially lead to inventory reductions?

A reduce lead times

B increase safety stock

C less frequent purchases

D larger batch quantities

E longer order intervals

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62 A non-linear cost related to order size is the cost of:

C amount in the first bin

D optimum stocking level

E Depend on the percentage assigned

65 Dairy items, fresh fruit and newspapers are items that:

A do not require safety stocks

B cannot be ordered in large quantities

C are subject to deterioration and spoilage

D require that prices be lowered every two days

E have minimal holding costs

66 Which of the following is least likely to be included in order costs?

A processing vendor invoices for payment

B moving delivered goods to temporary storage

C inspecting incoming goods for quantity

D taking an inventory to determine how much is needed

E temporary storage of delivered goods

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67 In an A-B-C system, the typical percentage of the number of items in inventory for A items is about:

D A items plus B items

E B items plus C items

69 In the A-B-C classification system, items which account for sixty percent of the total dollar-volume for few inventory items would be classified as:

A A items

B B items

C C items

D A items plus B items

E B items plus C items

70 The purpose of "cycle counting" is to:

A count all the items in inventory

B count bicycles and motorcycles in inventory

C reduce discrepancies between inventory records and actual

D reduce theft

E count 10% of the items each month

71 The EOQ model is most relevant for which one of the following?

A ordering items with dependent demand

B determination of safety stock

C ordering perishable items

D determining fixed interval order quantities

E determining fixed order quantities

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72 Which is not a true assumption in the EOQ model?

A Production rate is constant

B Lead time doesn't vary

C No more than 3 items are involved

D Usage rate is constant

E No quantity discounts

73 In a supermarket, a vendor's restocking the shelves every Monday morning is an example of:

A safety stock replenishment

B economic order quantities

E more frequently than annually

75 A risk avoider would want safety stock

B It is four times its previous amount

C It is half its previous amount

D It is about 70 percent of its previous amount

E It increases by about 40 percent

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77 In the basic EOQ model, if lead time increases from five to 10 days, the EOQ will:

A double

B increase, but not double

C decrease by a factor of two

D remain the same

E none of the above

78 In the basic EOQ model, an annual demand of 40 units, an ordering cost of $5, and a holding cost of $1 per unit per year will result in an EOQ of:

81 Which of the following is not true for Economic Production Quantity model?

A Usage rate is constant

B Production rate exceeds usage rate

C Run size exceeds maximum inventory

D There are no ordering or setup costs

E Average inventory is one-half maximum inventory

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82 Given the same demand, setup/ordering costs, and carrying costs, the EOQ calculated using incremental replenishment will be if instantaneous replenishment was assumed:

A greater than the EOQ

B equal to the EOQ

C smaller than the EOQ

D greater than or equal to the EOQ

E smaller than or equal to the EOQ

83 The introduction of quantity discounts will cause the optimum order quantity to be:

C be to the left of the price break quantity for that price

D have the largest quantity compared to other EOQ's

E none of the above

86 Which one of the following is not generally a determinant of the reorder point?

A rate of demand

B length of lead time

C lead time variability

D stockout risk

E purchase cost

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87 If no variations in demand or lead time exist, the ROP will equal:

A the EOQ

B expected usage during lead time

C safety stock

D the service level

E the EOQ plus safety stock

88 If average demand for an inventory item is 200 units per day, lead time is three days, and safety stock is 100units, the reorder point is:

89 Which one of the following is implied by a "lead time" service level of 95 percent?

A Approximately 95 percent of demand during lead time will be satisfied

B Approximately 95 percent of inventory will be used during lead time

C The probability is 95 percent that demand during lead time will exactly equal the amount on hand at the beginning of lead time

D The probability is 95 percent that demand during lead time will not exceed the amount on hand at the

beginning of lead time

E none of the above

90 Which one of the following is implied by an "annual" service level of 95 percent?

A Approximately 95 percent of demand during lead time will be satisfied

B The probability is 95 percent that demand will exceed supply during lead time

C The probability is 95 percent that demand will equal supply during lead time

D The probability is 95 percent that demand will not exceed supply during lead time

E None of the above

91 Daily usage is exactly 60 gallons per day Lead time is normally distributed with a mean of 10 days and a standard deviation of 2 days What is the standard deviation of demand during lead time?

A 60 x 2

B 60 times the square root of 2

C 60 times the square root of 10

D 60 x 10

E none of the above

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92 Lead time is exactly 20 days long Daily demand is normally distributed with a mean of 10 gallons per day and a standard deviation of 2 gallons What is the standard deviation of demand during lead time?

A 20 x 2

B 20 x 10

C 2 times the square root of 20

D 2 times the square root of 10

E none of the above

93 All of the following are possible reasons for using the fixed order interval model except:

A Supplier policy encourages use

B Grouping orders can save in shipping costs

C The required safety stock is lower than with an EOQ/ROP model

D It is suited to periodic checks of inventory levels rather than continuous monitoring

E Continuous monitoring is not practical

94 Which of these products would be most apt to involve the use of a single-period model?

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97 In the single-period model, if excess cost is double shortage cost, the approximate stockout risk, assuming

an optimum service level, is _ percent

C both internal and external inventories

D safety stock elimination

E optimizing reorder points

100 An operations strategy for inventory management should work towards:

A increasing lot sizes

B decreasing lot sizes

C increasing safety stocks

D decreasing service levels

E increasing order quantities

101 Cycle stock inventory is intended to deal with

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102 An operations strategy which recognizes high carrying costs and reduces ordering costs will result in:

A unchanged order quantities

B slightly decreased order quantities

C greatly decreased order quantities

D slightly increased order quantities

E greatly increased order quantities

103 The need for safety stocks can be reduced by an operations strategy which:

A increases lead time

B increases lead time variability

C increases lot sizes

D decreases ordering costs

E decreases lead time variability

104 If average demand for an item is 20 units per day, safety stock is 50 units, and lead time is four days, the ROP will be:

106 The fixed order interval model would be most likely to be used for this situation:

A A company has switched from mass production to lean production

B Production is done in batches

C Spare parts are ordered when a new machine is purchased

D Grouping orders can save shipping costs

E none of these

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107 Which item would be least likely to be ordered under a fixed order interval system?

A textbooks at a college bookstore

B auto parts at an assembly plant

C cards at a gift shop

D canned peas at a supermarket

E none of these

108 Which one of these would not be a factor in determining the reorder point?

A the EOQ

B the lead time

C the variability of demand

D the demand or usage rate

E all are factors

109 A car rental agency uses 96 boxes of staples a year The boxes cost $4 each It costs $10 to order staples, and carrying costs are $0.80 per box on an annual basis

Determine:

(A) the order quantity that will minimize the sum of ordering and holding boxes of staples

(B) the annual cost of ordering and carrying the boxes of staples

110 A service garage uses 120 boxes of cleaning cloths a year The boxes cost $6 each Ordering cost is $3 and holding cost is 10 percent of purchase cost per unit on an annual basis

Determine:

(A) The economic order quantity

(B) The total cost of carrying the cloths (excluding purchase price)

(C) The average inventory

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111 A shop that makes candles offers a scented candle, which has a monthly demand of 360 boxes Candles can be produced at a rate of 36 boxes per day The shop operates 20 days a month Assume that demand is uniform throughout the month Setup cost is $60 for a run, and holding cost is $2 per box on a monthly basis.Determine the following:

(A) the economic run size

(B) the maximum inventory

(C) the number of days in a run

112 Estimated demand for gold-filled lockets at Sam's Bargain Jewelry and Housewares is 2,420 lockets a year.Manager Veronica Winters has indicated that ordering cost is $45, and that the following price schedule applies:

1 to 599 lockets, $.90 each; 600 to 1,199 lockets, $.80 each; and 1,200 or more, $.75 each What order size will minimize total cost if carrying cost is $.18 per locket on an annual basis?

113 Suppose that you are the manager of a production department that uses 400 boxes of rivets per year The supplier quotes you a price of $8.50 per box for an order size of 199 boxes or less, a price of $8.00 per box for orders of 200 to 999 boxes, and a price of $7.50 per box for an order of 1,000 or more boxes You assign a holding cost of 20 percent of the price to this inventory What order quantity would you use if the objective is tominimize total annual costs of holding, purchasing, and ordering? Assume ordering cost is $80/order

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114 The operator of a concession at a downtown location estimates that he will sell 400 bags of circus peanuts during a month Carrying costs are 17 percent of unit price and ordering cost is $22 The price schedule for bags

of peanuts is: 1 to 199, $1.00 each; 200 to 499, $.94 each; and 500 or more $.87 each What order size would bemost economical?

115 A dry cleaning firm uses an average of 20 gallons of cleaning fluid a day Usage tends to be normally distributed with a standard deviation of two gallons per day Lead time is four days, and the desired service level is 92 percent What amount of safety stock is appropriate if a fixed order size of 600 gallons is used?

116 Suppose that usage of cooking oil at Harry's Fish Fry is normally distributed with an average of 15

gallons/day and a standard deviation of two gallons/day Harry has just fired the manager and taken over operating the restaurant himself Harry has asked you to help him decide how to reorder cooking oil in order to achieve a service level which is seven times the risk of stockout (7/8) Lead time is eight days Assume that cooking oil can be ordered as needed

117 A bakery's use of corn sweetener is normally distributed with a mean of 80 gallons per day and a standard deviation of four gallons per day Lead time for delivery of the corn sweetener is normal with a mean of six days and a standard deviation of two days If the manager wants a service level of 99 percent, what reorder point should be used?

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118 A manager reorders lubricant when the amount on-hand reaches 422 pounds Average daily usage is 45 pounds, which is normally distributed with a standard deviation of three pounds per day Lead time is nine days.What is the risk of a stockout?

119 Given the following information:

Order quantity = 300; = 20 units; desired lead time service level = 86

Find:

(A) the expected number of units short per cycle

(B) the annual service level

120 A company can produce a part it uses in an assembly operation at the rate of 50 an hour The company operates eight hours a day, 300 days a year Daily usage of the part is 300 parts The company uses the part every day The run size is 6,000 parts The annual holding cost is $2 per unit, and setup cost is $100

(A) How many runs per year will there be?

(B) While production is occurring, how many parts per day are being added to inventory?

(C) Assuming that production begins when there are no parts on hand, what is the maximum number of parts in inventory?

(D) The machine is dedicated to this product Every so often, preventive maintenance, which requires six working days, must be performed on it Does this interrupt production cycles, or is there enough time between cycles to perform the maintenance? Explain

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121 The injection molding department of a company uses 40 pounds of a powder a day Inventory is reordered when the amount on hand is 240 pounds Lead time averages five days It is normally distributed and has a standard deviation of two days What is the probability of a stockout during lead time?

122 A shop owner uses a reorder point approach to restocking a certain raw material Lead time is six days Usage of the material during lead time is normally distributed with a mean of 42 pounds and a standard

deviation of 4 pounds When should the raw material be reordered if the acceptable risk of a stockout is 3%?

123 The manager of a bakery orders three 'cake-to-go' wedding cakes every Saturday to accommodate last minute purchases Demand for the cakes can be described by a Poisson distribution that has a mean of 2 The cakes cost $10 each to prepare, and they sell for $26 each Any cakes that haven't been sold by the end of the day are sold for half price the next day Usually, half of those are sold and the rest are tossed What stocking level would be appropriate?

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124 A manager has just received a revised price schedule from a vendor What order quantity should the manager use in order to minimize total costs? Annual Demand is 120 units, ordering cost is $8, and annual carrying cost is $1 per unit.

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127 At what point should he reorder Stein beer?

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Ann Chovies, owner of the Perfect Pasta Pizza Parlor, uses 20 pounds of pepperoni each day in preparing pizzas Order costs for pepperoni are $10.00 per order, and carrying costs are 4 cents per pound per day Lead time for each order is 3 days, and the pepperoni itself costs $3.00 per pound.

132 At what point should she reorder pepperoni?

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136 What is the economic order quantity for pepperoni?

The Operations Manager for Shadyside Savings & Loan orders cash from her home office for her very popular

"BIG BUCKS" automated teller machine, which only dispenses $100 bills She estimates that this machine dispenses an average of 12,500 bills per month, and that carrying a bill in inventory costs 10 percent of its valueannually She knows that each order for these bills costs $300 for clerical and armored car delivery costs, and that order lead time is six days

137 Assuming a thirty-day month, at what point should bills be reordered?

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140 If she were to order 6,000 bills at a time, what would be the average monthly total costs, EXCLUDING thevalue of the bills?

Given the following data for a particular inventory item:

142 What is the economic order quantity for this item?

143 For the economic order quantity, what is the length of an order cycle?

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144 For the economic order quantity, what is the reorder point?

145 For the economic order quantity, what is the average inventory level?

146 For the economic order quantity, what are average weekly ordering costs?

147 For the economic order quantity, what are average weekly carrying costs?

148 For the economic order quantity, what are average weekly total costs, including the cost of the inventory item?

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The materials manager for a billiard ball maker must periodically place orders for resin, one of the raw

materials used in producing billiard balls She knows that manufacturing uses resin at a rate of 50 kilograms each day, and that it costs $.04 per day to carry a kilogram of resin in inventory She also knows that the order costs for resin are $100 per order, and that the lead time for delivery is four (4) days

149 At what point should resin be reordered?

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153 What is the economic order quantity for resin?

155 Joe's Coffee Shoppe has fresh doughnuts delivered each morning Daily demand for plain doughnuts is approximately normal with a mean of 200 and a standard deviation of 15 Joe pays $1.20 per dozen and has a standing order for 16 dozen Joe and the staff eat any leftovers What is the implied shortage cost?

156 A restaurant prepares Peking Duck daily at a cost of $18 per duck Each duck generates revenue of $47 if sold Demand for Peking Duck can be described by a Poisson distribution with a mean of 4.2 ducks per day Unsold ducks at the end of each day are converted to duck soup at an additional cost of $5 over and above the resulting value as soup How many ducks should be prepared each day?

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157 A machine is expected to use approximately three spare parts during its useful life The spares cost $200 each and have no salvage value or other use The manager has ordered five spares Assuming a Poisson usage rate, what range of shortage cost is implied?

158 A manager intends to order a new machine and must now decide on the number of spare parts to order along with the machine The parts cost $400 each and have no salvage value The manager has compiled a frequency distribution for the probable usage of spare parts, as shown For what range of shortage costs would stocking one spare part constitute an optimal decision?

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160 If unsold copies must be destroyed and copies sell for $4.00 each, find the optimum stocking level

161 If unsold copies can be returned for half credit and copies sell for $4.25 each, find the optimal stocking level

162 Demand for a component averages 80 units per week, with a weekly standard deviation of demand of 14 units The current supplier of this component offers a four-week lead time Stockout risk is to be kept at 8% Assume that it costs $50 to hold one unit in inventory for a year Suppose the annual cost for the items would be

$500 higher if they were purchased from another vendor, but that vendor would offer a two-week lead time Would it be better to go with the more-expensive but more-responsive vendor?

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ch13 Key

1 One important use of inventories in manufacturing is to decouple operations through the use of work in process inventories

TRUE

Decoupling operations is an important use of inventories

AACSB: Reflective Thinking

Blooms: Remember

Difficulty: Medium

Learning Objective: 13-01 Define the term inventory; list the major reasons for holding inventories; and list the main requirements for effective inventory management Stevenson - Chapter 13 #1

Topic Area: The Nature and Importance of Inventories

2 The objective of inventory management is to minimize the cost of holding inventory

FALSE

The objective of inventory management is to allow satisfactory customer service while keeping costs down

Blooms: Remember

Difficulty: Easy

Learning Objective: 13-04 Explain the objectives of inventory management.

Stevenson - Chapter 13 #2

Topic Area: Requirements for Effective Inventory Management

3 A retail store that carries twice the inventory as its competitor will provide twice the customer service level

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4 The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable

TRUE

This is the overall objective of inventory management

Blooms: Remember

Difficulty: Easy

5 The two main concerns of inventory control relate to the costs and the level of customer service

6 To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the timing and size of orders

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7 In the EOQ formula, holding costs under 10% are expressed as percentages, above 10% are expressed as annual unit costs

FALSE

Holding costs are expressed in monetary terms, whether as a set value or as a percentage of the per-unit cost

Blooms: Remember

Learning Objective: 13-06 Describe the basic EOQ model and its assumptions and solve typical problems.

Topic Area: How Much to Order: Economic Order Quantity Models

8 DVD recorders would be an example of independent demand items

TRUE

Components of the DVD recorders would be dependent demand items

Blooms: Remember

Difficulty: Easy

Topic Area: Introduction

9 Reorder point models are primarily used for dependent demand items

FALSE

Reorder point models are primarily used for independent demand items

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10 An example of inventory holding cost is the cost of moving goods to temporary storage after receipt from a supplier

FALSE

These are ordering costs

Blooms: Remember

Difficulty: Hard

11 Decoupling operations applies to the railroad industry

FALSE

Decoupling refers to buffering operations in manufacturing

Blooms: Remember

Difficulty: Easy

12 Interest, insurance, and opportunity costs are all associated with holding costs

TRUE

These are holding costs

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13 The A-B-C approach involves classifying inventory items by unit cost, with expensive items classified as

‘A' items and low cost items classified as ‘C' items

FALSE

A-B-C approach classifies inventory according to some measure of importance

Blooms: Remember

Learning Objective: 13-05 Describe the A-B-C approach and explain how it is useful.

14 An inventory buffer adds value and lowers cost in all supply chains

FALSE

Many buffers increase costs across supply chains

Blooms: Remember

15 In the A-B-C approach, C items typically represent about 15 percent of the number of items, but 60 percent

of the dollar usage

FALSE

C items typically represent about 60 percent of the number of items and about 15 percent of the dollar usage

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16 EOQ inventory models are basically concerned with the timing of orders

FALSE

EOQ models are concerned with the size of orders

Blooms: Remember

17 The average inventory level is inversely related to order size

FALSE

The average inventory level is positively related to order size

Blooms: Remember

18 The average inventory level and the number of orders per year are inversely related: As one increases, the other decreases

TRUE

These are inversely related

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19 The EOQ should be regarded as an approximate quantity rather than an exact quantity Thus, rounding the calculated value is acceptable

TRUE

The total cost function is relatively flat, so rounding costs little

Blooms: Remember

20 Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost

TRUE

Larger order quantities lead to higher inventory carrying cost

Blooms: Remember

Difficulty: Easy

21 Understocking an inventory item is a sure sign of inadequate inventory control

FALSE

Having an occasional stockout is not necessarily a sign of inadequate inventory control

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22 Annual ordering cost is inversely related to order size

TRUE

Annual ordering cost decreases as order size increases

Blooms: Remember

Difficulty: Easy

23 The total cost curve is relatively flat near the EOQ

TRUE

Thus approximating the EOQ can be a very good solution

Blooms: Remember

Difficulty: Easy

24 Because price isn't a factor in the EOQ formula, quantity discounts won't affect EOQ calculations

FALSE

If quantity discounts are offered, the EOQ might vary based on different holding costs

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25 In the quantity discount model, if holding costs are given as a percentage of unit price, a graph of the total cost curves will have the same EOQ for each curve

FALSE

Total cost curves will differ across the price levels

Blooms: Remember

Difficulty: Hard

Learning Objective: 13-08 Describe the quantity discount model and solve typical problems.

26 In the quantity discount model, the optimum quantity will always be found on the lowest total cost curve

FALSE

The optimum quantity might actually be when the discount is passed up

Blooms: Remember

Difficulty: Hard

Learning Objective: 13-08 Describe the quantity discount model and solve typical problems.

27 ROP models indicate to managers the time between orders

FALSE

ROP models indicate when, with regard to on-hand inventory, orders should be placed

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