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Exam 5: Inventory Management

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Question 51

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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?

A) less than or equal to 2800 units
B) greater than 2800 units but less than or equal to 2900 units
C) greater than 2900 units but less than or equal to 3000 units
D) greater than 3000

E) A) and B)
F) All of the above

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Question 52

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Sensitivity analysis on the economic order quantity (EOQ) formula can help the operations manager answer several questions on how to manage inventories.Which one of the following questions is NOT answered by EOQ sensitivity analysis?

A) How critical are errors in estimating demand (D) ,inventory holding cost (H) ,and setup cost (S) ?
B) What should happen to lot sizes if interest rates drop?
C) What should happen to cycle inventory if the demand rate increases?
D) What should happen to lot sizes if supply and lead-time uncertainty increase?

E) All of the above
F) A) and B)

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Question 53

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ABC analysis is the process of dividing items into three classes according to their dollar usage.

A(n)________ system is a system of inventory control in which a maximum level is marked on the storage shelf or on a measuring rod,and the inventory is brought up to the mark periodically.

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 reorder point if the company finally decides to have a 95 percent cycle-service level?

Cycle counting is an inventory control method whereby storeroom personnel physically count a small percent of the total number of items each day.

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

________ inventory is the portion of total inventory that varies directly with lot size.

The ________ is the measurement of an item's ability to satisfy future demand.

________ analysis is the process of dividing items into three classes according to their dollar usage so that managers can focus on items that have the higher dollar value.

For a given level of annual demand (D),as the lot size Q decreases,both inventory holding costs and ordering or setup costs decrease.

For a company that manufactures most of its products as standards,more inventory should be placed

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?

________ is the cost of preparing a purchase order for a supplier or a production order for the shop.

Which one of the following descriptions of a base-stock system is best?

The secondary levers for decoupling inventory emphasize

The primary reason for keeping inventories low is that inventory represents a temporary monetary investment in goods on which a firm must pay interest.

Table 5.10 A firm using the periodic review system (P system) reviews the status of an item every 4 weeks.The standard deviation in weekly demand is 60 units.The lead time for the item is 3 weeks,whereas demand averages 200 units per week.You will need to refer to a normal table to answer the question(s) . -Use the information in Table 5.10.How much safety stock should be held to achieve a 95 percent cycle service level?

Inventory is a stock of items used to satisfy customer demand or support the production of goods or services.

Table 5.8 You will need to refer to a normal table to answer the question(s) . -Use the information in Table 5.8.What is the EOQ for this item?