Inventory Management Graded Quiz

Total points 10
1.
Question 1
Using the ABC classification system for inventory, which of the following is a true statement?

1 point
The "A" items are of low dollar value.

You should allocate about 15% of the dollar volume to "B" items.

The "C" items are of moderate dollar value.

The "A" items are of high dollar value.

What is the ABC classification of inventory?
ABC analysis is a method in which inventory is divided into three categories, i.e. A, B, and C
in descending value. The items in the A category have the highest value, B category items are of
lower value than A, and C category items have the lowest value.

2.
Question 2
The cost of insurance for inventory is included in:

1 point
Customization cost

Ordering cost

Holding cost

Quality cost
Holding costs are those associated with storing inventory that remains unsold. These
costs are one component of total inventory costs, along with ordering and shortage
costs.

A firm’s holding costs include the price of goods damaged or spoiled, as well as that of
storage space, labor, and insurance.

3.
Question 3
Which one of these is included in ordering costs considered for calculating economic order quantity?

1 point
Storage cost

Transportation cost
Spoilage cost

Loan servicing cost

4.
Question 4
Economic Order Quantity (EOQ) is the order quantity that…

1 point
Minimizes total carrying costs

Minimizes total inventory costs

Minimizes total ordering costs

The required safety stock

Economic order quantity (EOQ) is the ideal order quantity a company should purchase
to minimize inventory costs such as holding costs, shortage costs, and order costs.
This production-scheduling model was developed in 1913 by Ford W. Harris and has
been refined over time. The formula assumes that demand, ordering, and holding
costs all remain constant.

5.
Question 5
The average inventory level used as the basis for the basic Economic Order Quantity (EOQ) model is calculated
as

1 point
One-half of the order quantity.

Two times the order quantity.

The quantity on hand one-half of the way between order receipts.

The square root of the order quantity.

The average inventory level in the basic EOQ model used in this chapter is. one-half of the order
quantity. the quantity on hand one-half of the way between order receipts.

6.
Question 6
The purpose of safety stock is to:

1 point
Eliminate the possibility of losses due to shoplifting.

Control the probability of a stockout due to variable demand.

Eliminate the possibility of mistakes in counting inventory.

Replace failed units with good ones.

7.
Question 7
If annual demand is 18,000 units, order quantity is 750 units, and the costs incurred every time an order is
placed amount to $50, the annual ordering cost, i.e., total cost of orders placed in the year, is:

1 point
$960

$1,200

$500

$600
8.
Question 8
A company has recorded the last five days of daily demand for their only product. These values are 120, 125,
124, 128, and 133 units. The time from when an order is placed to when it arrives at the company from its
vendor is 4 days. Using the continuous review inventory management model, average demand computed based
on five days of data, and no safety stock, the reorder point (ROP) is:

1 point
120 units

504 units

630 units

126 units

32) Answer "C" --- 630

Average demand is (120 + 125 + 124 + 128 + 133)/5 = 126.

Lead time = 5 days so the reorder point is 126 x 5 = 630

9.
Question 9
For a continuous review system, if the standard deviation of demand is 7 per week, the lead time is 4 weeks,
and the desired service level is 95% (z=1.64), approximately what is the safety stock?

1 point
7 units

12 units
46 units

23 units

Safety stock = Z*Standard deviation*(Lead time)^.5 = 1.64*7(4)^5 = 23

Z at 95% = 1.64

Safety stock = 1.64*100*3^.5

Safety stock = 284.06 or 284 units

10.
Question 10
Which of these will reduce the safety stock inventory called for without impacting the level of service offered to
customers?

1 point
Increasing the cycle service level

Increasing the standard deviation for demand

Increasing the supply lead time

Reducing the supply lead time