Question 1

Inventory holding costs typically include:

Accepted Answer

A)   clerical costs of purchase-order preparation.
B)   costs of deterioration, theft, or spoilage.
C)   costs associated with lost sales to customers.
D)   forgone interest on money tied up in inventory.
E)   both costs of deterioration, theft, or spoilage and forgone interest on money tied up in inventory.

Question 2

When considering safety stock and its effect on EOQ, which of the following statements is false?

Accepted Answer

A)   Safety stock is equal to the potential excess usage of an input.
B)   The reorder point is affected by the existence of safety stock.
C)   Safety stock decreases inventory holding costs.
D)   Safety stock decreases the potential costs caused by inventory shortages.
E)   Fluctuations in monthly usage of a material indicate the desirability of a safety stock.

Question 3

Shields carries a part that is popular in the manufacture of automatic sprayers. Demand for this part is 4,000 units per year; order costs amount to $30 per order, and holding costs total $1.50 per unit. The company is considering the implementation of an economic order quantity model in an effort to better manage its inventories.
Required:
A. Compute the economic order quantity.
B. Compute total annual inventory costs if Shields follows the EOQ policy.

Accepted Answer

A. The EOQ can be figured by taking the ...

Question 4

Shields carries a part that is popular in the manufacture of automatic sprayers. Demand for this part is 4,000 units per year; order costs amount to $30 per order, and holding costs total $1.50 per unit.
The company, which currently places four orders per year with its suppliers, is considering the implementation of an economic order quantity (EOQ) model to better manage its inventories. Preliminary EOQ calculations revealed an optimal order quantity of 400 units and total annual inventory costs of $600.
Required:
A. In comparison with its current policy, how much will Shields save by adopting the EOQ model?
B. Briefly explain the philosophical difference between the EOQ model and the just-in-time model. Which of the two models will likely result in lower holding costs for the firm? Why?

Accepted Answer

A. Shields is currently ordering four ti...

Question 5

Inventory holding costs would typically include all of the following except:

Accepted Answer

A)   insurance.
B)   theft.
C)   transportation.
D)   obsolescence.
E)   warehouse rent.

Question 6

Burgoon uses an economic order quantity model and has determined an optimal order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order, and holding costs are $4 per unit. The company's annual ordering and holding costs total:

Accepted Answer

A)   $2,000.
B)   $3,000.
C)   $21,000.
D)   $41,000.
E)   none of the other answers are correct. A

Question 7

Cartwright Graphics uses a special purpose paper on 80% of its jobs. The paper is purchased in 100-sheet packages at a cost of $100 per package. Management estimates that the cost of placing and receiving a typical order is $15, and the annual cost of carrying a package in inventory is $1.50. Cartwright uses 2,600 packages each year. Production is constant, and the lead time to receive an order is 1 week.
The economic order quantity is approximately:

Accepted Answer

A)   203 packages.
B)   225 packages.
C)   228 packages.
D)   565 packages.
E)   631 packages.

Question 8

When graphing the EOQ, which of the following statements is false?

Accepted Answer

A)   Holding costs are a downward sloping line to the right.
B)   The EOQ is represented by the minimum total cost.
C)   Ordering costs are a downward sloping line to the right.
D)   Average inventory on hand results in higher holding costs.
E)   As order size increases, so does average inventory on hand.

Question 9

Economic Order Quantity, timing of orders and safety stock are three important considerations in inventory management.
Required:
A. Explain each of these considerations.
B. How is EOQ affected by the timing of orders and safety stock?

Accepted Answer

A. EOQ is a mathematical model that minimizes the costs of ordering and holding inventory. Timing of orders takes into account any lead time necessary between placing and receiving the inventory ordered. Safety stock allows for fluctuations in usage and minimizes losses due to lost production.
B. The need for a lead time when placing orders and maintenance of a safety stock will alter the selection of the EOQ. Proper weighting of the three will result in cost minimization by the company.

Question 10

Which of the following does not minimize ordering costs when using JIT purchasing?

Accepted Answer

A)   Reducing the number of vendors.
B)   Negotiating long-term supply agreements.
C)   Making less frequent payments.
D)   Maintaining a safety stock.
E)   Eliminating inspections. D

Question 11

At the economic order quantity:

Accepted Answer

A)   total annual inventory costs, holding costs, and ordering costs are all minimized.
B)   total annual inventory costs and holding costs are minimized.
C)   total annual inventory costs are minimized, and holding costs equal ordering costs.
D)   total annual inventory costs are minimized, and holding costs exceed ordering costs.
E)   total annual inventory costs are minimized, and ordering costs exceed holding costs.

Question 12

Cartwright Graphics uses a special purpose paper on 80% of its jobs. The paper is purchased in 100-sheet packages at a cost of $100 per package. Management estimates that the cost of placing and receiving a typical order is $15, and the annual cost of carrying a package in inventory is $1.50. Cartwright uses 2,600 packages each year. Production is constant, and the lead time to receive an order is 1 week.
The reorder point is:

Accepted Answer

A)   25 packages.
B)   50 packages.
C)   100 packages.
D)   203 packages.
E)   225 packages.

Question 13

When comparing EOQ and JIT inventory systems, which of the following statements is false?

Accepted Answer

A)   The EOQ approach takes the viewpoint that some inventory is necessary.
B)   The EOQ system assumes a constant order quantity.
C)   JIT argues that inventory investments should be minimized.
D)   The EOQ system focuses on acquisition and holding costs.
E)   JIT argues that safety stocks are necessary to reduce the probability of a stock shortage.

Question 14

Which of the following is classified as an inventory shortage cost?

Accepted Answer

A)   Purchase order preparation.
B)   Production disruption.
C)   Lost sales and lost customers.
D)   Spoilage.
E)   Both production disruption and lost sales and lost customers.

Exam 20: Inventory Management

Inventory holding costs typically include:

Correct Answer
verified

When considering safety stock and its effect on EOQ, which of the following statements is false?

Correct Answer
verified

Correct Answer
verified
A. The EOQ can be figured by taking the ...
View Answer

Correct Answer
verified
A. Shields is currently ordering four ti...
View Answer

Inventory holding costs would typically include all of the following except:

Correct Answer
verified

Burgoon uses an economic order quantity model and has determined an optimal order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order, and holding costs are $4 per unit. The company's annual ordering and holding costs total:

Correct Answer
verified
A

Correct Answer
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When graphing the EOQ, which of the following statements is false?

Correct Answer
verified

Economic Order Quantity, timing of orders and safety stock are three important considerations in inventory management. Required: A. Explain each of these considerations. B. How is EOQ affected by the timing of orders and safety stock?

Which of the following does not minimize ordering costs when using JIT purchasing?

Correct Answer
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D

At the economic order quantity:

Correct Answer
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Correct Answer
verified

When comparing EOQ and JIT inventory systems, which of the following statements is false?

Correct Answer
verified

Which of the following is classified as an inventory shortage cost?

Correct Answer
verified

Exam 20: Inventory Management

Inventory holding costs typically include:

Correct AnswerverifiedShow Answer

When considering safety stock and its effect on EOQ, which of the following statements is false?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA. The EOQ can be figured by taking the ...View AnswerShow Answer

Correct AnswerverifiedA. Shields is currently ordering four ti...View AnswerShow Answer

Inventory holding costs would typically include all of the following except:

Correct AnswerverifiedShow Answer

Burgoon uses an economic order quantity model and has determined an optimal order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order, and holding costs are $4 per unit. The company's annual ordering and holding costs total:

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

When graphing the EOQ, which of the following statements is false?

Correct AnswerverifiedShow Answer

Economic Order Quantity, timing of orders and safety stock are three important considerations in inventory management. Required: A. Explain each of these considerations. B. How is EOQ affected by the timing of orders and safety stock?

Which of the following does not minimize ordering costs when using JIT purchasing?

Correct AnswerverifiedD

At the economic order quantity:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When comparing EOQ and JIT inventory systems, which of the following statements is false?

Correct AnswerverifiedShow Answer

Which of the following is classified as an inventory shortage cost?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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A. The EOQ can be figured by taking the ...
View Answer

Correct Answer
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A. Shields is currently ordering four ti...
View Answer

Correct Answer
verified

Correct Answer
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A

Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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