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Exam 5: Inventory Management

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Question 51

True/False

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Reducing the lead times associated with purchasing or producing items has no impact on the level of safety stock inventory.

A) True
B) False

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Question 52

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Table 5.1 Fred Jacobs, assistant manager of Home and Hearth, is reviewing the costs associated with the store's best-selling frying pan. The data available to Mr. Jacobs concerning this frying pan follow. $\begin{array} { l l } \text { Demand } & = 20 \text { units/week } \\\text { Order cost } & = \$ 75 / \text { order } \\\text { Holding cost } & = \$ 15 / \text { unit/year }\end{array}$ Home and Hearth operates 50 weeks per year. -Use the information in Table 6.1.Jacobs has recently learned of the economic order quantity in his business management class.If Home and Hearth implemented the EOQ,which of the following statements is TRUE?

A) The annual order cost and holding cost would increase.
B) The economic order quantity would be greater than 125 units.
C) The annual order cost would increase.
D) The annual holding cost would increase.

E) A) and B)
F) B) and D)

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Question 53

True/False

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The economic order quantity (EOQ),is the lot size that minimizes total annual inventory holding and ordering costs.

How do the characteristics of the product being produced and process structure influence the relative allocation of inventory across a process,that is whether inventories are more likely to be held as raw materials,work-in-process,or finished goods.

Dependent demand items are those items for which demand is influenced by market conditions and is not related to inventory decision for any other item held in stock.

Typically,the cost of capital is not a significant component of the holding cost for inventory.

How does the ABC method of analysis for managing inventory work?

Which one of the following reasons creates a pressure for reducing inventories?

Which one of the following statements about anticipation inventory is TRUE?

A periodic review system is a system in which an item's inventory position is reviewed periodically rather than continuously.

________ inventory is inventory used to absorb uneven rates of demand or supply.

The Franklin County Hospital is currently using a continuous review system to control its inventory.One of the items in inventory is an elastic band.The average demand for this item is 200 boxes per week,and the standard deviation in weekly demand is 50 boxes.If the lead time is 3 weeks and the hospital wants a 99 percent cycle-service level,what is the reorder point for this item? A normal table is appended to this exam.

An assistant manager is reviewing the costs associated with one of the store's better-selling products.The data available follows: Demand = 4000 units/year Order cost = $50/order Holding cost = $2/unit/year a.The current order quantity is 400 units per order.What is the total annual ordering cost and holding cost for this order size? b.What would be the EOQ and its associated ordering and holding cost?

Table 5.9 Demand = 140 units/week Standard deviation in weekly demand $= 21$ units Ordering cost $= \$ 20$ /order Holding cost $= \$ 1$ per unit per year Cycle-service level $= 85$ percent Lead time $= 6$ weeks You will need to refer to a normal table to answer the question(s) . -Use the information in Table 5.9.Design a periodic review system with P = 4 weeks.Assume demand during lead time plus review period to be normally distributed.What target inventory will provide the desired cycle-service level of 85 percent?

Table 5.4 A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead time for the item is 6 weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. You will need to refer to a normal table to answer the question(s) . -Use the information in Table 5.4.What is the desired safety stock level if the company has a policy of maintaining a 90 percent cycle-service level?

The degree at which all the work can be done is referred to as ________.

Table 5.3 The Medfield Import Autoparts Company imports and sells standard air filters for most Japanese cars, and it operates under the continuous review system. The average demand for this item is 1200 units per month (14,400 per year) , and the standard deviation in monthly demand is 250 units. It costs the company $225 to process each order, and the lead time is 2 months. The holding cost for one unit is $0.50 per year, and the company policy is to maintain a 95 percent cycle-service level. You will need to refer to a normal table to answer the question(s) . -Use the information in Table 5.3.What is the reorder point R if the cycle-service level is brought down to 80 percent?

________ inventory is the surplus inventory that a company holds to protect against uncertainties in demand,lead time,and supply.

For an item under continuous review,the on-hand inventory is only 20 units and the reorder point R is 100 units.There are no backorders,but there is one open order for 90 units.Which one of the following statements is TRUE?

What is an optional replenishment system?