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Exam 18: Inventory Management

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Question 1

True/False

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Profit margins tend to be inversely related to inventory turns.

A) True
B) False

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Question 2

Multiple Choice

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In a two-bin inventory system, the amount contained in the second bin is equal to the:

A) ROP.
B) EOQ.
C) amount in the first bin.
D) optimum stocking level.
E) safety stock.

F) A) and B)
G) A) and E)

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Question 3

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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 value annually. 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. Assuming a 30-day month, if she were to order 6,000 bills at a time, what would be the average monthly total costs, EXCLUDING the value of the bills?

A manufacturer is contemplating a switch from buying to producing a certain item. Setup cost would be the same as ordering cost. The production rate would be about double the usage rate. Compared to the EOQ, the economic production quantity would be approximately:

The A-B-C approach involves classifying inventory items based on their name.

The total cost curve is relatively flat near the EOQ.

To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: when to order and how much to order.

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

ROP models indicate to managers the time between orders.

The manager of the Quick Stop Corner Convenience Store (which never closes) sells four cases of Stein beer each day. Order costs are $8.00 per order, and Stein beer costs $.80 per six-pack (each case of Stein beer contains four six-packs) . Orders arrive three days from the time they are placed. Daily holding costs are equal to 5 percent of the cost of the beer. At what point should he reorder Stein beer?

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

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:

In an A-B-C system, the typical percentage of the number of items in inventory that is classified as A items is about:

Weekly demand for a particular item averages 30 units, with a standard deviation of 4. This item is managed with a fixed-order-interval model. The order interval is three weeks, and this item has a certain lead time of one week. The desired service level is 97.5 percent. Assume that it is now time to place another order, and there are 43 units on hand. How many units should be ordered?

In the A-B-C classification system, items which account for about 60 percent of the annual dollar value, but only about 10 to 15 percent of the items in inventory, would be classified as:

The average inventory level is inversely related to order size.

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 three days, and the pepperoni itself costs $3.00 per pound. What is the economic order quantity for pepperoni?

In a single-period model, if shortage and excess costs are equal, then the optimum service level is:

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

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.