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Inventory Managment
1. Though one objective of inventory management is to minimize the cost of holding inventory, name an
additional goal. HINT: It is the reason we have safety stock
Customer service level.
2. To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds,
what two fundamental decisions must be made about inventory?
Timing and size of orders.
3. An example of inventory holding cost is the cost of moving goods to temporary storage after receipt from
a supplier.
True False
FALSE
These are ordering costs.
4. Interest, insurance, and opportunity costs are all associated with holding costs.
True False
TRUE
These are holding costs.
5. 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
FALSE
A-B-C approach classifies inventory according to some measure of importance.
6. EOQ inventory models are basically concerned with the timing of orders.
True False
FALSE
EOQ models are concerned with the size of orders.
7. Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost.
True False
TRUE
Larger order quantities lead to higher inventory carrying cost
8. ROP models indicate to managers the time between orders.
True False
FALSE
ROP models indicate when, with regard to on-hand inventory, orders should be placed.
9. When to order can be calculated by the ROP and expressed as a quantity.
TRUE
ROP models indicate when, with regard to on-hand inventory, orders should be placed.
10. The rate of demand is an important factor in determining the ROP.
True False
TRUE
The demand rate multiplied by the lead time is a major part of the ROP.
11. Safety stock is held because we anticipate future demand.
True False
FALSE
Safety stock is held because we anticipate fluctuations in future demand or in lead time
12. Variability in demand and/or lead time can be compensated for by safety stock.
True False
TRUE
Safety stock can be used to accommodate these.
13. ROP models assume that demand during lead time is composed of a series of dependent daily demands.
True False
FALSE
ROP models assume that demand during lead time is composed of a series of independent daily demands.
14. Profit margins tend to be inversely related to inventory turns.
True False
TRUE
This is typically the case.
15. In the fixed-order interval model, the order size is the same for each order.
True False
FALSE
Order size varies from order to order in a fixed-order interval model.
16. The fixed-order interval model requires a continuous monitoring of inventory levels.
True False
FALSE
The fixed-order interval model leads to periodic monitoring of inventory levels.
17. The single-period model can be very helpful in determining how much to order.
True False

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TRUE
The single-period model helps determine how many to order.
18. Monitoring inventory turns over time can be used as a measure of performance.
True False
TRUE
Greater turnover often implies better performance.
19. The basic EOQ model ignores the purchasing cost.
True False
TRUE
Only if quantity discounts are offered does purchasing cost enter into EOQ analysis.
20. In a single period inventory model, if demand exceeds stocking level, a __________ occurs
Stockout
21. Does safety stock eliminate stock outs?
No. It only decreases the likelihood
22. The calculation of safety stock requires knowledge of __________ and __________.
Service level and lead time variability
23. What are the two basic issues in inventory management?
1. What to order
2. How much to order
24. All stock outs must be avoided.
True False
FALSE
Most of the time it would be too costly to avoid all stockouts.
25. 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.
D. Quantity discounts are available
26. 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
A. Reducing lead times
27. 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
C. subject to deterioration and spoilage
28. 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
E. temporary storage of delivered goods
29. In an A-B-C system, the typical percentage of the number of items in inventory for A items is about:
A. 10
B. 30
C. 50
D. 70
E. 90
A. 10
30. In the A-B-C classification system, items which account for fifteen percent of the total dollar-volume for a
majority of the 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
C. C items
31. In the A-B-C classification system, items which account for sixty percent of the total dollar-volume for few

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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
A. A items
32. 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
E. determining fixed order quantities
33. In a supermarket, a vendor's restocking the shelves every Monday morning is an example of:
A. safety stock replenishment
B. economic order quantities
C. reorder points
D. fixed order interval
E. blanket ordering
D. fixed order interval
34. 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
D. Remain the same because EOQ is about how much to order, not when to order
35. 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
E. purchase cost
36. 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
B. expected usage during lead time
This is because R= dL
37. 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
D. The probability is 95 percent that demand during lead time will not exceed the amount on hand at the
beginning of lead time.
38. 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.
C. The required safety stock is lower than with an EOQ/ROP model
39. Which of these products would be most apt to involve the use of a single-period model?
A. gold coins
B. hammers
C. fresh fish
D. calculators
E. frozen corn
C. fresh fish
40. The management of supply chain inventories focuses on:
A. internal inventories

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B. external inventories
C. both internal and external inventories
D. safety stock elimination
E. optimizing reorder points
C. both internal and external inventories
41. 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
B. decreasing lot sizes
42. 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
C. greatly decreased order quantities
43. 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
E. decreases lead time variability
44. With an A-B-C system, an item that had a high demand but a low annual dollar volume would probably
be classified as:
A. A
B. B
C. C
D. none of these
C. C items
45. 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
D. Grouping orders can save shipping costs.
46. 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
A. the EOQ

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