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Online Instructors Manual

to accompany

Introduction to Materials Management


Sixth Edition
Tony Arnold
Steve Chapman
Lloyd Clive

Upper Saddle River, New Jersey


Columbus, Ohio

__________________________________________________________________________________

Copyright 2008 by Pearson Education, Inc., Upper Saddle River, New Jersey 07458. All
rights reserved. Printed in the United States of America. This publication is protected by
Copyright and permission should be obtained from the publisher prior to any prohibited
reproduction, storage in a retrieval system, or transmission in any form or by any means,
electronic, mechanical, photocopying, recording, or likewise. For information regarding
permission(s), write to: Rights and Permissions Department.
Instructors of classes using Arnold, Chapman, and Clives Introduction to Materials
Management, Sixth Edition, may reproduce material from the instructors manual for classroom
use.
.
10 9 8 7 6 5 4 3 2 1

ISBN-13: 978-0-13-59838-6
ISBN-10:
0-13-159838-4

ii

CONTENTS

Chapter 1: Introduction to Materials Management................................................................... 1


Chapter 2: Production Planning System ...................................................................................

Chapter 3: Master Scheduling................................................................................................... 21


Chapter 4: Material Requirements Planning............................................................................. 32
Chapter 5: Capacity Management............................................................................................. 59
Chapter 6: Production Activity Control.................................................................................... 68
Chapter 7: Purchasing ............................................................................................................... 82
Chapter 8: Forecasting .............................................................................................................. 90
Chapter 9: Inventory Fundamentals........................................................................................ 102
Chapter 10: Order Quantities .................................................................................................. 113
Chapter 11: Independent Demand Ordering Systems............................................................. 125
Chapter 12: Physical Inventory and Warehouse Management ............................................... 139
Chapter 13: Physical Distribution.............................................................................................149
Chapter 14: Products and Processes .........................................................................................160
Chapter 15: Just-in-Time Manufacturing..................................................................................170
Chapter 16: Total Quality Management ...................................................................................181

iii

INTRODUCTION TO MATERIALS MANAGEMENT


CHAPTER 1
ANSWERS TO PROBLEMS
1.1

Sales
100%
100%
Cost of manufacturing 60%
50%
Other costs
30%
90%
30%
80%
Profit (percent of Sales)
10%
20%
Therefore a 10% reduction in the cost of manufacturing would produce a 100% increase
in profit.
1.2

Profit =
0.20 =
Sales =

Sales (direct costs + overhead)


Sales (0.60 Sales + 0.30)
0.5 = 1.25 = 125%
0.4
To increase profits from 10% to 20% takes a 25% increase in sales but only a 10%
decrease in costs. Good materials management can have a direct impact on profit.

1.3

a. Weekly cost of goods sold


Value of 10 weeks WIP =
b. Value of 7 weeks WIP =
Reduction in WIP
Annual saving
=

1.4

a. Weekly cost of goods sold


Value of 12 weeks' WIP =
b. Value of 5 weeks' WIP =
Reduction in WIP
Annual saving
=

$15,000,000 =

50
10 $300,000
7 $300,000

=
=
=
20% $900,000 =

$3,000,000
$2,100,000
$900,000
$180,000

$40,000,000 =

50
12 $800,000
5 $800,000

=
=
=
20% $5,600,000

$300,000

$800,000

$9,600,000
$4,000,000
$5,600,000
=
$1,120,000

1.5

Using $1 million as the units:


Sales
Direct material
Direct labor
Overhead
Profit

$10.0
$3.5
2.5
3.5

9.5
$.5

As a % of sales
100%
35%
25%
35% 95%
5%

a. From the above we can say: (in millions or M$)


Sales = direct material + direct labor + overhead + profit (now 1M$)
= .35(sales) + .25(sales) + 3.5 M$+ 1.0 M$
.40 (Sales) =
4.5 M$
Sales = 11.25 = 11.25 $1,000,000 = $11,250,000
Therefore there must be a $1.25 million increase in sales.
b. To increase profit by $500,000 there must be a $500,000 reduction in cost. Therefore
direct material must be reduced by $500,000. It therefore takes 2 times the sales
dollars to obtain the profit that would be realized in material reductions.
c. As for b. Direct labor would have to be reduced by $500,000.

MULTIPLE CHOICE QUESTIONS


1.

Select the best answer to the following:


a. traditionally the supply-production-distribution functions have reported to
different departments
b. the supply, production and distribution functions are part of a total system
c. materials flow into an organization, are processed in some way and distributed
to the consumer
d. all the above are correct
e. none of the above is correct

2.

Manufacturing is important to the economy because:


a. it generates wealth
b. it supports service industries
c. it adds value to products
d. all of the above
e. none of the above

3.

Which of the following is the best statement about the operating environment in which
operations management functions?
a. most organizations do not need to worry about competition
b. customers are more demanding
c. government regulation is not important for companies
d. price is more important than quality
e. none of the above is true

4.

Which of the following statements is best regarding order winners?


a. they persuade a company's customers to choose its product
b. they are the same in every market
c. they are the same as order qualifiers, only better
d. they are present in every product
e. all the above are true

5.

Which of the following strategies has the shortest delivery lead time and the least customer
input?
a. engineer-to-order
b. make-to-order
c. assemble-to-order
d. make-to-stock

6.

Which of the following statements is best?


a. the supply chain includes all activities and processes to provide a product or
service to a customer.
b. material in the supply chain usually flows from producer to customer.
c. the supply chain contains only one supplier.
d. all of the above are true.
e. a and b only are true.

7.

Companies A and B supply company C, which supplies customers D and E. Which of the
following statements is best?
a. the supply chain for company A includes B, C, D, and E.
b. the supply chain for company B includes A, C, D and E.
c. the supply chain for company C includes A, B, D, and E.
d. all the above are true.

8.

Which of the following statements is best?


a. the basic elements of a supply chain are supply, production, and distribution
b. the elements of a supply chain are interdependent
c. design information generally flows from customer to supplier
d. all the above are true

9.

Which of the following is the best statement about the environment in which operations
management functions?
a. most organizations do not need to worry about competition
b. world-wide competition is not significant for most companies
c. government regulation is not important for companies
d. customers are more demanding
e. none of the above is true

10. If a firm wishes to maximize profit, which of the following objectives are in conflict?
I. Maximize customer service.
II. Minimize production costs.
III. Minimize inventory costs.
IV. Minimize distribution costs.
a. all the above
b. none of the above
c. I and II only
d. I and III only
e. II and III only

11. Which of the following statements is best?


I. The conflict between marketing, finance and production centers on customer
service, disruption to production, and inventory levels.
II. Marketing's objectives can be met with higher inventories.
III. Finance's objectives can be met with higher inventories.
IV. Production's objectives can be met with higher inventories.
a. all of the above are true
b. I and II only are true
c. I, II and III only are true
d. I, II and IV only are true
e. II, III and IV only are true
12. Which of the following is normally a major activity of materials management?
I. Manufacturing planning and control.
II. Physical supply/distribution.
a. both I and II
b. neither I nor II
c. I only
d. II only
13. The objective of materials management is to:
I. Provide the required level of customer service.
II. Maximize the use of the firm's resources.
a. I only
b. II only
c. I and II
d. neither I nor II
14. Which of the following is/are primary activities of manufacturing planning and control?
I. Production planning.
II. Implementation and control.
III. Inventory management.
a. I and II only
b. II and III only
c. I and III only
d. all the above are primary activities
15. Which of the following is (are) input(s) to manufacturing planning and control?
a. product description
b. process description
c. available facilities
d. quantities to be produced
e. all the above are inputs

16. Which of the following is NOT an activity of physical supply/distribution?


a. transportation
b. factory inventory
c. warehousing
d. packaging
e. materials handling
17. Materials management can be considered a balancing act because:
I. There are trade-offs between customer service and the cost of providing the service.
II. Priority and capacity must be balanced.
a. neither I nor II
b. I only
c. II only
d. I and II
18. If the cost of manufacturing (direct labor and materials) is 50% of sales and profit is 15% of
sales, what would the profit percentage be if the direct costs of manufacturing was reduced
from 50% to 47%?
a. 3%
b. 6%
c. 12%
d. 15%
e. 18%
19. Which of the following are generally considered overall objectives of an organization?
I. Providing good customer service.
II. Maintaining low levels of inventory investment.
III. Optimizing use of resources.
IV. Providing sufficient return on investment.
a. I and II only
b. I, II and III only
c. I, III and IV only
d. all the above

20. The purpose of the materials management concept is:


I. To manage materials in a production operation.
II. To have purchasing support the needs of production.
III. To have production support the needs of purchasing.
a. II and III only
b. I and II only
c. I, II and III
d. I and III only
21. Making a pizza at a fast-food restaurant would be considered a form of:
a. Engineer to order
b. Assemble to order
c. Make to stock
d. Make to order
e. None of the above
22. Metrics in a supply chain are:
a. Governed by the International Metric Commission
b. Measurements of performance
c. A charge passed on to customers
d. Not used on transportation
e. Do not apply to the supply chain
23. Performance measures in a supply:
a. Should be objective
b. Are viewed mostly by finance
c. Must be measurements of one parameter only
d. Concentrate on cost only
e. Are not used once a process is automated
24. Which statement is best?
a. Performance standards are set by the supplier
b. Performance standards set the goal
c. Performance measurements show how well you did
d. Both b and c are correct
e. None of the above applies to the supply chain
25. Savings in the supply chain mostly are the result of:
a. Members in the chain sharing information
b. Being able to ship in larger quantities
c. Members having clout with suppliers
d. Sticking with local competition
e. Cutting cost after the design phase

Answers.
1 d
2 d
10 a
11 d
19 d
20 b

3 b
12 a
21 b

4 a
13 c
22 b

5 d
14 d
23 a

6 e
15 e
24 d

7 c
16 b
25 a

8 d
17 d

9 e
18 e

PRODUCTION PLANNING SYSTEM


CHAPTER 2
ANSWERS TO PROBLEMS
2.1

Ending inventory =
=

2.2

Total working days


= 19 + 20 + 21
= 60
Average daily production =
500 60 =

8.3 units

Total working days


= 22 + 21 + 20
= 63
Average daily production =
20,000 63 =

317.5 units

2.3

opening inventory + production demand


400 + 800 900 = 300 units

2.4

Month 1 production
Month 2 production
Month 3 production

=
=
=

19 8.3
20 8.3
21 8.3

=
=
=

157.7 units
166 units
1174.3 units

2.5

Month 1 production
Month 2 production
Month 3 production

=
=
=

22 317.5 =
21 317.5 =
20 317.5 =

6985 units
6667.5 units
6350 units

2.6
d
ast
ed production
ed inventory

500

700

700

1100

1600

1100

800

1000

1000

1000

1000

1000

1000

800

1100

1000

400

300

500

100

120

130

140

120

110

720

130

130

130

130

130

130

780

130

140

140

130

140

160

2.7
Period
Forecast demand
Planned
production
Planned
inventory

100

Total production =
Period production =

720 + 100 160 =


780 6
=

780 units
130 units

Total

2.8
Period
Forecast demand
Planned
production
Planned
inventory

500

Total production =
Period production =

1300

1200

800

600

917

917

917

117

167 50

5700 + 300 500


5500 6
=

Total

800

1000

5700

917

917

917

5500

267

383

300

= 5500 units
917 units

2.9
Period

Forecast demand
Planned
production
Planned
inventory

32

32

Total

a. 8 units
b. period 1, minus 1
c. 9 units, ending inventory = 4 units
2.10

a. There is a stockout of 1 unit in period one.


The cost will be:
Stockout cost: 1 $500 =
$500
Carrying cost: 3 $50 =
150
Total cost:
=
$650
c. Total period inventory = 0 + 5 + 3 + 4
=
12 units
The cost will be
= $50 12
= $600
Since there are no stockouts this will be the total cost of the plan.

10

2.11

a.
b.
c.
d.

Total production =
Daily production =
The monthly production for May
The ending inventory for May

Month

May

Working days
Forecast demand
Planned
production
Planned
inventory

100

530 + 130 100 = 560


560/70 = 8 units
= 168 units
= 153 units

Jun

Jul

Aug

Total

21

19

20

10

70

115

125

140

150

530

168

152

160

80

560

153

180

200

130

Jan

Feb

Mar

Apr

May

20

22

20

20

18

19

119

1200

1300

800

700

700

900

5600

874

961

874

874

787

830

5200

274

65

183

270

200

2.12
Month
Working days
Forecast demand
Planned
production
Planned
inventory

600

Total production = 5600 + 200 600 = 5200


Daily production = 5200 119
= 43.7 units per day
There will be a stockout of 65 units in February.

11

Jun

Total

2.13

Total production = 300 + 1080 200 = 1180 units


Number of weeks available for production = 5.5
Average weekly level production
= 1180 = 214.5 units
5.5
The nearest quantity that can be produced is 200 units on two shifts. In the second week
there is a shutdown so production in that week that will be only 100 units.
Total production so far =
5 200 + 100 =
1100 units
The balance of 80 units can be made in week four when extra help is available.
Opening inventory =
200 units
Week
Forecast demand
Planned
production
Planned
inventory

200

Total

120

160

240

240

160

160

1080

200

100

200

280

200

200

1180

280

220

180

220

260

300

2.14

Ending backlog = demand + opening backlog production


=
700 + 500 800 =
400 units

2.15

Total production

= demand + opening backlog ending backlog


=
3800 + 900 200
=
4500 units
Weekly production = 4500 6
= 750 units
Week
Forecast demand
Planned
production
Planned backlog

900

Total

600

700

700

700

600

500

3800

750

750

750

750

750

750

4500

750

700

650

600

450

200

12

2.16 Desired ending backlog = 1200


Note: All weekly production amounts determined using standard rounding rules.
Total production = demand + opening backlog ending backlog
=
6800 + 1100 1200
=
6700 units
Weekly production =
6700 6 =
1117 units
Week
Forecast demand
Planned
production
Planned backlog

2.17

1100

Total

1200

1100

1200

1200

1100

1000

7300

1117

1117

1117

1117

1117

1117

7200

1183

1166

1249

1332

1315

1198

Total production = 112,500 + 9000 11,500


=
110,000 units
Daily production = 110,000 75
=
1466.67 units
Number of workers required =
1466.67/14 = 104.76
105
Actual daily production
=
105 14
=
1470 units

Month

Working days
Forecast demand
Planned
production
Planned
inventory

11500

Total

20

24

12

28000

27500

28500

28500 112500

29400

35280

17640

27930 110250

12900

20680

9820

13

19

9250

75

2.18

Total production
= 17900 + 800 1000
= 17700
Daily production
= 17700/117 = 151.28 units
Number of workers required =
151.28/9 = 16.81
Actual daily production = 17 9
= 153 units
Month

Working days
Forecast demand
Planned
production
Planned
inventory

1000

17 workers

Total

20

24

12

22

20

19

2800

3000

2700

3300

2900

3200 17900

3060

3672

1836

3366

3060

2907 17901

1260

1932

1068

1134

1294

1001

117

It is not possible to meet the ending inventory target because of the extra fraction of a
worker needed. The only way to do it would be to reduce the number of workers to 16 at some
point.

14

MULTIPLE CHOICE QUESTIONS


1.

The ability of manufacturing to produce goods and services is called:


a. scheduling
b. production planning
c. capacity
d. routing
e. none of the above

2.

Priority in production planning relates to:


a. what should come first
b. how much of what is needed and when
c. capacity
d. an objective of the firm
e. none of the above

3.

Which of the following is an input to the production plan?


a. strategic business plan
b. financial plan
c. market plan
d. engineering plan
e. all of the above are inputs

4.

Which of the following plans has the longest planning horizon and the least level of detail?
a. strategic business plan
b. production plan
c. master production schedule
d. all of the above have the same level of detail
e. none of the above

5.

In terms of INCREASING level of detail, which is the best sequence of activities?


I. Material requirements planning.
II. Master production scheduling.
III. Production planning.
a. I, II and III
b. I, III, and II
c. II, III, and I
d. II, I, and III
e. III, II, and I

15

6.

Over the time span of the production plan, which of the following can usually be varied to
change capacity?
a. work force
b. inventories
c. plant and equipment
d. all of the above
e. a and b above

7.

Which of the following is a characteristic of a production plan?


a. time horizons are five years
b. the production plan is for individual items
c. the only objective is to have an efficient plant
d. all of the above are characteristics of a production plan
e. none of the above is characteristic of a production plan

8.

Determining the need for labor, machines, physical resources to meet the production
objectives of the firm is called:
a. production control
b. production planning
c. capacity planning
d. all of the above
e. none of the above

9.

The function of setting the limits or levels of manufacturing operations based on the market
plan and resource availability is called:
a. production planning
b. production activity level
c. capacity planning
d. all of the above
e. none of the above

10. A statement of a schedule of requirements for individual end items is called:


a. a master production schedule
b. a material requirements plan
c. a production plan
d. a capacity plan
e. none of the above
11. Which of the following statements is most appropriate regarding production planning?
a. a high level of detail is not needed
b. a translation must be made from product demand to capacity demand
c. product groups based on similarity of manufacturing process should be used in
planning
d. all of the above are true
e. none of the above is true

16

12. Which of the following statements is best about sales and operations planning?
a. it provides an means of updating the material requirements plan
b. it includes only the marketing and production plans
c. it is usually updated on a monthly basis
d. it has no effect on inventory levels
13. Which of the following are characteristics of an MRPII system?
I. It incorporates the plans of marketing, production and finance.
II. It is a fully integrated planning and control system.
III. It has feedback from the bottom up.
a. I only
b. II only
c. III only
d. I, II and III
14. For the purposes of production planning, product groups should be established on the basis
of:
a. market segments
b. similarity of manufacturing process
c. the availability of materials
d. the availability of machinery
e. all of the above
15. Which of the following is a basic strategy in developing a production plan?
a. hybrid strategy
b. production leveling
c. chase strategy
d. a and b above
e. b and c above
16. A production planning strategy which turns away extra demand is called:
a. production leveling
b. demand matching
c. hybrid strategy
d. all of the above
e. none of the above
17. Which basic production planning strategy will build inventory and avoid the costs of excess
capacity?
a. demand matching (chase)
b. production leveling
c. subcontracting
d. all the above
e. none of the above

17

18. Which basic production planning strategy avoids hiring and layoff costs and the costs of
excess capacity?
a. demand matching
b. operation smoothing
c. subcontracting
d. all the above
e. none of the above
19. If the opening inventory is 100 units, the sales are 500 units and the ending inventory is 200
units, then manufacturing must produce:
a. 300 units
b. 400 units
c. 500 units
d. 600 units
e. none of the above
20. Over a 10-week period the cumulative sales are forecast at 10,000 units, the opening
inventory is 200 units and the closing inventory is to be 100 units. What should be the
weekly planned production for level production?
a. 990
b. 1000
c. 1010
d. 1030
e. none of the above
21. Firms will generally make-to-stock when:
a. demand is unpredictable
b. there are many product options
c. delivery lead times are long
d. all of the above
e. none of the above
22. Firms will generally make-to-order when:
a. products are produced to customer specifications
b. there are many product options
c. product is expensive to make and store
d. all of the above
e. none of the above

18

23. Which of the following information is needed to develop a make-to-stock production plan?
I. Forecast by time period for the production plan.
II. Opening inventory.
III. Opening backlog of customer orders.
IV. Desired ending inventory.
a. I, II and III
b. I, II and IV
c. 1, III and IV
d. II, III and IV
e. none of the above
24. If the old backlog was 200 units, the forecast for the next period is 500 units, and
production for the next period is 600 units, what will be the backlog at the end of the next
period?
a. 100 units
b. 200 units
c. 300 units
d. 700 units
e. 800 units
25. ____________ is concerned with long-term planning of manufacturing activity:
a. Sales and operations planning
b. Master production scheduling
c. MRP
d. Production activity control
e. Master planning
26. Which of the following is NOT a rule of Sales and Operations Planning?
a. Product Groups need not be decided
b. Planning units of measure need to be decided
c. A planning horizon must include new product development time
d. Performance review periods to be compared should be decided
27. Which of the following is a complete closed loop planning system that develops plans for
all materials and operations?
a. Capacity requirements planning
b. Enterprise resource planning
c. Supply chain management
d. Material requirements planning

19

Answers.
1 c
2 b
10 a
11 d
19 d
20 a

3 e
12 c
21 e

4 a
13 d
22 d

5 e
14 b
23 b

6 e
15 e
24 a

20

7 e
16 e
25 a

8 c
17 b
26 a

9 a
18 c
27 b

MASTER SCHEDULING
CHAPTER 3
ANSWERS TO PROBLEMS
3.1
Week

Forecast sales

10

50

25

50

10

15

20

70

45

95

85

70

Projected
available
MPS

30

100

100

3.2
Week
Forecast sales
Projected
available
MPS

300

200

300

350

200

150

150

100

50

50

100

150

200

400

200

200

200

Total

220

300

200

200

250

150

150

150

200

200

200

200

Total

120

180

100

120

520

20

120

200

200

3.3
Production Plan
Quarter
Forecast sales
Projected
available
Production plan

270

Mailbox A. Lot size: 200


Quarter
Forecast sales
Projected
available
MPS scheduled

120

21

920

Mailbox B. Lot size: 200


Quarter
Forecast sales
Projected
available
MPS scheduled

150

Total

100

120

100

80

400

250

130

30

150

200

200

400

3.4
Production plan
Week
Forecast
Projected
available
Production plan

2000

Model A.
Week
Forecast
Projected
available

1500

MPS

3000

3500

3500

4000 14000

3000

3500

4000

4000

4000

4000

4000

4000

Total

500

8500

2000

2000 2500

2000

1500

3500 1000

3000

2000

Model B.
Week
Forecast
Projected
available
MPS

Total

4000

4000

Total

1000

1500

1000

2000

5500

1500

3000

1000

2000

4000

22

3.5
Master production schedule
Week
1
2

Product A

205

Product B
Product C
Total
production

205

205

205

205

205

205

205

205

205

205

Product A

280

210

140

70

125

Product B

60

20

185

350

460

340

Product C

205

360

310

260

210

160

Total inventory

545

590

635

680

670

625

Total

Model A

175

125

125

150 112.5

687.50

Model B

66

132 181.5

99 148.5

627.00

241

257 306.5

Inventory
Week

3.6

205

a.
Week

Total hours

249

261 1314.50

b. The total hours required (1314.50) exceeds the total hours available (5 X 260 = 1300).
If possible, schedule some of the work from Week 3 into Weeks 1 and 2, and also work
overtime.
3.7
Week
Customer
orders
MPS
ATP

70

70

20

40

10

30

100

100

100

10

50

100

23

3.8
Week
Customer
orders
MPS

21

14

30

30

30

16

18

ATP

6
3

3.9
Week
Customer
orders
MPS

10
50

50

50

ATP

40

Week

Forecast sales
Projected
available
ATP

45

50

40

40

40

40

30

15

10

60

18

9
10

3.10

100

100

100

100

10

20

30

85

3.11
On hand: 60 units
Week
Customer
orders
MPS
ATP

20

50

30

30

50

30

100

100

30

20

50

50

30

60

50

40

30

15

3.12
On hand: 50 units
Week
Customer
orders
MPS
ATP

100

100

100

100

10

30

85

24

10

3.13
Week

5
40

Customer
orders
MPS

70

10

50

40

15

20

15

100

100

100

ATP

20

30

50

Possible action is to promise delivery of 20 in week 5 and the balance in week 6. The ATP
for week 1 would become 0, for week 3, 0 and for week 6, 40.
3.14
Week

Forecast
Customer
orders
Projected
available
balance
MPS

80

80

80

70

100

90

50

40

40

150

70

140

200

3.15
Week

Forecast
Customer
orders
Projected
available
balance
MPS

50

50

50

50

60

30

60

20

70

10

60

60

100

100

3.16
Period

Forecast
Customer
orders
PAB

20

21

22

20

28

25

19

18

20

18

30

22

43

23

33

20

MPS
ATP

60

60

25

MULTIPLE CHOICE QUESTIONS


1.

The information needed to develop a master production schedule will be got from:
a. the production plan
b. the forecast of individual end items
c. inventory levels for individual end items
d. all of the above
e. none of the above

2.

The MPS is a vital link the production planning system because it:
I. Keeps priorities valid.
II. Forms the basis for determining the capacity needed.
III. Is input to the material requirements plan.
IV. Is input to the production plan.
a. I, II, III and IV
b. I, II and III
c. I, II and IV
d. II, IIII and IV
e. 1, 3 and 4

3.

The MPS:
a.
b.
c.
d.
e.

4.

facilitates order promising


works with individual end products
is an agreed-upon plan between production and marketing
all of the above
none of the above

The functions of a master production schedule are to:


I. Plan material components
II. Plan capacity requirements
III. Keep priorities valid
a. I, II and III
b. I, II and not III
c. I, III and not II
d. II, III and not I
e. none of the above is a function of the MPS

26

5.

Which of the following are objectives of an MPS?


I. Maintain the desired level of customer service.
II. Keep the sales department happy.
III. Make the best use of material, labor and equipment.
IV. Maintain inventory investment as required.
a. only I is an objective
b. only I and II are objectives
c. only I, II and III are objectives
d. only I, III and IV are objectives
e. only II, III and IV are objectives

6.

The process of checking the MPS against available capacity is called:


a. capacity planning
b. shop-floor control
c. rough-cut capacity planning
d. capacity control
e. process checking

7.

In an assemble-to-order company, at which level should master scheduling take place?


a. the component/subassembly level
b. the end item level
c. the raw material/component level
d. it does not matter, any level will do
e. none of the above levels

8.

The final assembly schedule (FAS):


a. schedules customer orders as they are received based on components planned in
the MPS
b. is used with make-to-order products
c. is used with make-to-stock products
d. a and b above
e. none of the above

9.

Which of the following statements is best regarding the master production schedule?
a. it is an agreed-upon plan between marketing and manufacturing
b. if it is poorly done we can expect past-due schedules and unreliable delivery
promises
c. it is a plan for specific end items that manufacturing expects to make over some
period in the future
d. all of the above are true
e. none of the above is true

27

10. The portion of inventory or production not committed to customer orders is called:
a. free stock
b. available to promise
c. excess production
d. waste
e. excess capacity
11. If there are customer orders the projected available is based on:
a. forecast demand
b. customer orders
c. the greater of forecast demand and customer orders
d. the opinion of the planner
12. Which of the following is (are) true about time fences in a master production schedule
system?
I. Changes far out in the planning horizon can be made with little or no cost to
manufacturing.
II. In the "frozen zone," capacity and materials are committed to specific orders.
III. Changes in the near future on the planning horizon are less costly to make than
changes far out.
a. I, II and not III
b. II, III and not I
c. I, III and not II
d. I, II, and III
e. none of the above
13. Which of the following is NOT an input to the master production schedule?
a. sales forecast for items
b. current inventory status
c. final assembly schedule
d. customer orders
e. production plan
14. The MPS is constrained by:
I. The availability of material.
II. Available capacity.
III. Inventory policies.
IV. Production plan.
a. all of the above
b. I, II, III only
c. I and II only
d. II and III only
e. none of the above

28

15. Given the following data, complete the table. There are 30 on hand. Order quantity is 60
units.
Week
1
2
3
4
Forecast
20
30
50
20
Projected available
Scheduled receipts
a. the projected available in week 3 is 40
b. the projected available in week 4 is 30
c. there is a scheduled receipt in week 4
d. a and b are true
e. b and c are true
16. Given the following table, calculate the ATP. There are 50 units on hand.
Week
1
2
3
4
5
Customer orders
20
20
15
30
10
Scheduled receipts
50
ATP
a. the ATP in week one is 10
b. the ATP in week one is 30
c. the ATP in week one is 5
d. the ATP in week two is 10
e. the ATP in week three is 35
17.

The time span for which plans are made is called the:
a. time fence
b. planning horizon
c. time bucket
d. forecast period
e. none of the above

18.

The final assembly schedule is used:


a. in a make-to-stock environment
b. in a make-to-order environment
c. in a assemble-to-order environment
d. in any of the above
e. in none of the above

19. The PAB is calculated in which way for periods after the demand time fence?
a. PAB = prior period PAM or on-hand balance + MPS customer orders
b. PAB = prior period PAB or on-hand balance + MPS + customer orders
c. PAB = prior period PAB or on-hand balance + MPS customer orders
d. PAB = prior period PAB + MPS greater of customer orders or forecast
e. PAB = prior period PAB + MPS + greater of customer orders or forecast

29

20. Which of the following is the term applied to a master schedule for a purchased item?
a. Supplier scheduling
b. Master scheduling
c. Material scheduling
d. Purchase order
21. Which of the following is a contract between manufacturing and marketing?
a. Production plan
b. Master schedule
c. Forecast
d. Customer order
22. Master scheduling is a balancing act between which of the following?
a. Forecasts and orders
b. Inventory and customer service
c. Supply and demand
d. Forecast and inventory
23. Which of the following modules follows the Sales and Operations Plan?
a. Business planning
b. Production planning
c. Master scheduling
d. Material requirements planning
24. Sales forecasting and resource capacity planning are two components of which of the
following?
a. Master scheduling
b. Sales and operations planning
c. Production Plan
d. Master production schedule

30

Answers.
1 d
2 b
10 b
11 c
19 c
20 d

3 d
12 a
21 b

4 d
13 c
22 c

5 d
14 a
23 c

6 c
15 b
24 c

31

7 a
16 c

8 a
17 b

9 d
18 c

MATERIAL REQUIREMENTS PLANNING


CHAPTER 4
ANSWERS TO PROBLEMS
4.1

Each X requires 2 As.


Each A requires 2 Cs.
Therefore each X requires 4 Cs.
Each Y requires 2 C
Total Cs. required

50 Xs require 200 Cs.


100 Ys require 200 Cs.
400

4.2
B (2)
E (2)
G (4) F (3)

C (4)

D (4)

F (1) G (2)
H (2)

Number of Gs required.
Each A requires 2 Bs
Each B requires 2 Es =
Each E requires 4 Gs =
Each A requires 4 Cs.
Each C requires 2 Gs =
Total Gs required =

4 Es for each A
16 Gs for each A
8 Gs for each A
24 Gs for each A

32

4.3
Part A
Lead time: 1
week
Part B
Lead time: 1
week
Part C
Lead time: 1
week
Part D
Lead time: 1
week
Part E
Lead time: 2
weeks

Week
Planned order
receipt
Planned order
release
Planned order
receipt
Planned order
release
Planned order
receipt
Planned order
release
Planned order
receipt
Planned order
release
Planned order
receipt
Planned order
release

200
200
200
200
200
200
200
200
200

4.4
Week
Gross requirements
Projected available
Net requirements
Planned order
receipt
Planned order
release

40

1
20
20

2
15
5

3
10
35
15
40

40

33

4
20
15

5
200

4.5
Part A

Part B

Part C

Part D

Part E

Part F

Week
Gross requirements
Projected available
Net requirements
Planned order receipt
Planned order release
Gross requirements
Projected available
Net requirements
Planned order receipt
Planned order release
Gross requirements
Projected available
Net requirements
Planned order receipt
Planned order release
Gross requirements
Projected available
Net requirements
Planned order receipt
Planned order release
Gross requirements
Projected available
Net requirements
Planned order receipt
Planned order release
Gross requirements
Projected available
Net requirements
Planned order receipt
Planned order release

100
200
0
180
180

20
180

100
100
100
100
380
0
380
380
380
180
0
180
180
180
100
0
100
100
100

34

5
100
0
100
100

4.6
Week
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release

1
20
40

3
35

4
25

20
0

2
65
100
55
0

20
0

100

95
5
100
0

1
30
50
30

2
25

3
10

4
10

45
5
50

35

4.7
Week
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release

10

50

35

4.8
Part H
Lead time
1 week

Part I
Lead time
2 weeks

Part J
Lead time
1 week

Part K
Lead time
1 week

Week
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release

3
50
0
50
50

50

80

100
100
0

160
0

0
160
160

80

80

5
80
0
80
80

160
320
400

400

80

480
400

400
80

36

0
80
80

80

4.9
Part Y
Lead time 2
weeks
Lot Size: 50
Gross
requirements
Scheduled
receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Part Z
Lead time 1 week
Lot Size: 100
Gross
requirements
Scheduled
receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release

Week
1

30
30
30

4
30

20
30
50

50

Week

20

2
100

20

20
80
100

20

20

100

37

4.10
Part A
Lead time:
1 week

Part B
Lead time:
1 week

Part C
Lead time:
1 week

Part D
Lead time:
1 week

Part E
Lead time:
1 week

Week
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release

5
100
0
100
100

100
200
100
100

100

0
100
100

100
100
0
100
100

100

300

300

0
300
300

100

100

38

0
100
100

Part F
Lead time:
1 week

Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release

100
0
200

100

100

4.11
Part X
Lead time:
1 week
Lot size:20
Part Y
Lead time:
2 weeks
Lot size: 50
Part Z
Lead time:
2 weeks
Lot size:
lot-for-lot
Part W
Lead time:
1 week
Lot size: 400

Week
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release

10

15
20
15

3
5

15

10

15
5
20

20

30

30

60
50
20

10
5

15
10
10
20

20
60
20

10
40
50

10

50

90
90
0

40
0

0
40
40

350

350

40
50
0
400

39

350
50
400

350

4.12

Item
Low-level code

A
0

B
2

C
1

D
2

E
1

F
0

4.13

Item
Low-level code

A
0

B
0

C
3

D
1

E
2

F
2

G
2

H
3

J
3

4.14
LowLevel
code

Week
Part A

Lead
time:
1 week
Lot-forlot
Part F

Lead
time:
1 week
Lot-forlot
Part B

Lead
time:
2 weeks
Lot size:
300

Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release

60

70

0
60
60

0
70
70

60

70

100

100

60
200

40

200

140

0
100
100

70
140

70

70

Part C

Lead
time:
2 weeks
Lot-forlot
Part D

Lead
time:
2 weeks
Lot size:
300
Part E

Lead
time:
3 weeks
Lot size:
500

Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release

120
120
0
100

100
300
200

100
0
100
100

140
0
140
140

140

140

200

60

160
140
300

160

160

160

160

160

300

400

100

140

300

160

The low-level code for part D is 2. There is a planned order release of 300 for part D in week 1.
There are no planned order releases for part E. There is a planned order release of 100 for Part C
in week 1 and 140 in week 2.

41

4.15

LowLevel
code

Week
Part A

Lead
time:
1 week
Lot-forlot
Part B

Lead
time:
1 week
Lot-forlot
Part C

Lead
time:
2 weeks
Lot-forlot
Part D

Lead
time:
1 week
Lot-forlot

Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release

20

20

20 20
80

100

50

0
80
80
50

0
50
50

80

210

100

220

10

0
90
90

300

90

80

160
0
160
160
160

42

80

50

0
80
80
50

0
50
50

190
200
10

10

10

Part E

Lead
time:
1 week
Lot-forlot

Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release

90
0
90
90
90

4.16
Lowlevel
code

Week
Part A

Lead
time:
1 week
Lot-forlot
Part B

Lead
time:
1 week
Lot-forlot

Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release

100
0
100
100
100

50
0
50
50
50

43

Part C

Lead
time:
1 week
Lot-forlot
Part D

Lead
time:
1 week
Lot-forlot
Part E

Lead
time:
1 week
Lot size:
500
Part F

Lead
time:
1 week
Lot-forlot

Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release
Gross
requirements
Scheduled receipts
Projected
available
Net requirements
Planned order
receipt
Planned order
release

100
100
0
200

200

50

0
200
200
50

0
50
50

100
0
100
100
100

400
40
500
400
500

50

200

50

0
200
200
50

0
50
50

500

200

44

50

4.17
Initial MRP
Week
Gross requirements
Scheduled receipts
PAB
Net requirements
Planned order
receipt
Planned order
release
Revised MRP
Week
Gross requirements
Scheduled receipts
PAB
Net requirements
Planned order
receipt
Planned order
release

1
50
100

50

1
50
100

50

2
125
200
125

3
100

2
125
200
125

3
150

25

25
25

4
60
200
165

4
60
200
115

5
40
125

5
40
75

Possible actions include expediting the scheduled receipt in week 4 to week 3.


4.18
Initial MRP
Week
Gross requirements
Scheduled receipts
Projected available
Net requirements
Planned order
receipt
Planned order
release

50

1
70
100
80

2
40

3
80

4
50

5
40

40

60
40
100
100

10

70
30
100

100

45

MRP record at the end of week one


Week
Gross requirements
Scheduled receipts
Projected available
50
Net requirements
Planned order
receipt
Planned order
release

2
40
10

3
100
100
10

100

46

4
50

5
40

6
40

60
40
100
100

20

80
20
100

MULTIPLE CHOICE QUESTIONS


1.

In the diagram below the independent demand item is:


X
1

a.
b.
c.
d.
e.

X
1
2
3
4

2.

_______ is a set of priority planning techniques for planning component items below the
_________:
a. Material requirements planning; end item level
b. Master production scheduling; the market plan
c. Production planning; end item level
d. all of the above
e. none of the above

3.

The objectives of material requirements planning are to:


a. issue orders to purchasing and manufacturing
b. keep priorities current
c. determine requirements
d. all of the above
e. b and c above

4.

Which of the following is (are) elements in an MRP system?


a. the computer
b. bills of material
c. inventory records
d. all of the above
e. none of the above

5.

A set of priority planning techniques for planning component items below the end item
level is called:
a. master scheduling
b. material requirements planning
c. capacity planning
d. production control
e. none of the above

47

6.

A major input to an MRP system is:


a. the production plan
b. the capacity plan
c. shop-floor activity planning and control
d. the master schedule
e. none of the above

7.

The document that shows the component parts and the number of parts needed to make one
of an assembly or subassembly is called:
a. a route sheet
b. a material requirements plan
c. a bill of material
d. a material requisition
e. none of the above

8.

A product tree shows:


a. the parts that go into making a product
b. the subassemblies used in making the product
c. the sequence in which parts go together
d. all of the above
e. none of the above

9.

Which of the following statements is best?


a. a part number identifies one part only
b. a part has one and only one part number
c. the same part on different bills of material will have the same part number
d. all of the above are true
e. none of the above is true

10. Which of the following statements is best?


A
B
D

a.
b.
c.
d.
e.

C
E

item A is the parent of item B


item D is on level 3
item A is a parent of item D
all of the above are true
none of the above is true

48

11. A multi-level bill of material:


I. Reflects the way the product will be manufactured.
II. Is produced by the engineering department.
III. Is a parts list only and does not contain subassemblies.
a. only I is true
b. only II is true
c. only III is true
d. I and II are true
e. I, II and III are true
12. A bill of material whose purpose is to simplify forecasting, master production scheduling
and material requirements planning is called:
a. a summarized parts list
b. where-used bill
c. planning bill
d. structured bill
e. multi-purpose bill
13. Which of the following statements is best?
a. a where-used report is the same as a pegging report
b. a where-used report shows all the components that go into assembly
c. a pegging report shows all the parents for a component
d. a where-used report shows only those parents for which there is an existing
requirement
e. pegging reports show only the parents for which there are requirements
14. The ability to relate the demand for an item shown on an MRP record back to the particular
parent causing the demand is called:
a. where-used
b. relating
c. pegging
d. any one of the above
e. none of the above

49

15. The lead time for each item is 1 week. If an order for 50 of A is to be delivered in week 5,
in what week will there be a planned order RELEASE for item B?
A
B
D
a.
b.
c.
d.
e.

C
E

5
4
3
2
1

16. Which statement is correct?


a. planned order releases show when the order is needed
b. when an order is released, it becomes a planned order
c. scheduled receipts show when goods were put into inventory
d. all of the above are correct
e. none of the above is correct
17. Which statement is correct?
a. a product tree shows the parts that go into making a product
b. a part has one and only one part number
c. net requirements = gross requirements on-hand inventory scheduled receipts
d. all of the above are correct
e. none of the above is correct
18. In material requirements planning the process of placing the exploded requirements in the
proper time periods, based on the assembly lead times involved, is known as:
a. exploding
b. offsetting
c. netting
d. all of the above
e. none of the above

50

19. Which statement is best?


a. the planned order release of the parent generates the gross requirement of the
component
b. the planned order release of the parent becomes the net requirement of the
component
c. the planned order release of the component becomes the order receipt of the
parent
d. all of the above are true
e. none of the above is true
20. Which of the following statements is best about released orders?
a. a scheduled receipt is a released order
b. an open order is a released order
c. a planned order release is a not a released order
d. all of the above are true
e. none of the above are true
21. Which of the following is NOT true of an MRP record?
a. the current time is the beginning of the first period
b. the number of periods in the record is called the planning horizon
c. an item is considered to be available at the end of the time bucket in which it is
required
d. the projected on-hand balance is for the end of the period
e. the immediate or most current period is called the action bucket
22. In the following product trees the low level code of item D is:
A

a. 0
b. 1
c. 2

d.
e.

3
4

23. Which of the following statements is best?


a. every item has more than one low-level code
b. net requirements = gross requirements + on-hand + scheduled receipts
c. each part has at least one part number, depending on where it is used
d. all of the above are true
e. none of the above is true

51

24. Given the following product tree, the parent of B is:


A
B
D
a.
b.
c.
d.
e.

C
E

A
B
C
D
E

25. Given the following parents and components, how many Bs are required to make an X?
Quantities are shown in brackets.
Parent
X
A
Component
A(2)
B(2)
B(1)
D(1)
a.
b.
c.
d.
e.

1
2
3
4
5

26. Which of the following are controlled by the materials planner?


a. firm planned orders
b. planned orders
c. released orders
d. exception messages
e. all of the above

52

27.

A
C

The lead time for each item is 2 weeks. If an order for 100 of A is to be delivered in week 6,
in what week will there be a planned order RELEASE for item B?
a. 5
b. 4
c. 3
d. 2
e. 1

Use the following MRP record and your calculations to answer the following two questions.
The component has an order quantity of 100, a safety stock of ten, and a lead time of one
period. Complete the following MRP record.
Week
1
Gross requirements 25
Scheduled receipts
100
Projected available 30
Net requirements
Planned order receipt
Planned order release

2
80

3
20

4
80

28. Complete the above MRP record. Which of the following statements is correct?
a. a planned order for 50 should be released in period two
b. the projected available in period three is 55
c. the projected available in period three is five
d. the net requirement in period two is 20
e. the net requirement in period three is ten
29. The net requirement in period three is:
a. 0
b. 5
c. 10
d. 15

53

30. Which of the following statements is best regarding part numbering systems?
a. significant part numbering systems are difficult to maintain
b. it is easier to remember numbers than letters
c. a random number is an identifier not a descriptor
d. all of the above are true
31. Which of the following is elapsed time from recognition of a need until the time that need is
satisfied?
a. Production time
b. Lead time
c. Cycle time
d. Schedule
32. Which of the following comes directly from external customers?
a. Dependent demand
b. Independent demand
c. Bill of materials
d. Order quantity
33. Service parts experience which of the following types of demand?
a. Independent
b. Dependent
c. Independent and Dependent
d. None of the above
34. In material requirements planning, the process of placing the exploded requirements in the
proper time periods, based on the assembly lead times involved, is known as:
a. scheduling
b. offsetting
c. netting
d. all of the above
e. none of the above
35. A bill of material for an item must change:
a. when a component changes
b. when there is a change in the use of the item
c. when the item is used in another parent
d. never
e. if the item is fully interchangeable

54

36. Three inputs to the MRP process are:


a. production activity control, purchasing, and the production plan
b. inventory status, the master production schedule, and the product structure
c. the master production schedule, inventory status, and the capacity requirements
plan
d. the product structure, production activity control, and inventory status
e. the product structure, production activity control, and the master production
schedule
37. Which of the following statements is true?
I. Firm planned orders are planned orders frozen by the planner.
II. Released orders are planned orders that have been released by the computer.
III. The planner should not release an order unless satisfied the order can be carried out.
a. I and II only
b. I and III only
c. II and III only
d. I, II, and III
e. none of the statements is true
38. Given the following product tree, how many product structure relationships are there?
a. 1
b. 2
c. 3
d. 4
e. 5
39. The document that shows the component parts and the number of parts needed to make one
of an assembly or subassembly is called:
a. a route sheet
b. a material requirements plan
c. a bill of material
d. a material requisition
e. none of the above

55

40. In the product structure diagram below item X has _______________ demand and item 2
has _______________ demand.
A
B
D (2)
a.
b.
c.
d.
e.

C
D

dependent, dependent
dependent, independent
independent, independent
independent, dependent
none of the above answers are correct

The following two questions use the information in this MRP record. The lead time is 3 weeks.
Week
1
2
Gross requirements 60 50
Scheduled receipts
100
Projected available
40 90
Net requirements
Planned order receipt
Planned order release
100

3
60

4
70

30

5
20
40

41. The projected available to be shown in week three is:


a.
b.
c.
d.
e.

0
75
125
175
none of the above

X
1

42. The net requirement for week four is:


a. 25
b. 50
c. 75
d. 200
e. any of the above

56

43. The beginning projected available is:


a. 10
b. 40
c. 60
d. 100
e. cannot be determined from the data
44. Which of the following statements is best?
a. the same part on different bills of material has different part numbers
b. a part number identifies one part only
c. a significant part numbering system should always be used
d. all of the above are true
e. none of the above are true

57

Answers.
1 a
10 a
19 a
28 b
37 b

2
11
20
29
38

a
a
d
d
e

3
12
21
30
39

d
c
c
d
c

4
13
22
31
40

d
e
c
b
d

5
14
23
32
41

b
c
e
b
a

6
15
24
33
42

58

d
c
a
c
c

7
16
25
34
43

c
e
e
b
e

8
17
26
35
44

d
d
a
a
b

9
18
27
36

d
b
a
e

CAPACITY MANAGEMENT
CHAPTER 5
ANSWERS TO PROBLEMS
5.1

Weekly available time=

4 16 5 =

5.2

Hours actually worked

5.3

Rated capacity

320 .75 1.15

5.4

Rated capacity

7 16 5 .85 1.10

= 492.8 standard hours

5.5

Rated capacity

3 8 5 .75 1.25 =

112.5 standard hours

5.6

Demonstrated capacity

5.7

Measured capacity

5.8

Utilization
Efficiency

75 80 = 93.75%
85 75 = 113.33%

5.9

Time available
=
3 40 4
Utilization
=
360 480
Efficiency
=
468 360
Demonstrated Capacity =

5.10

5.11

5.12

=
=

320 hours

320 .75

=
=

240
276 standard hours

50 + 45 + 40 + 55
4
1050 11

=
480 hours
=
75%
=
130%
468 4
=

Available hours
= 12,000
Hours actually worked = 10,000
Standard hours produced =
Utilization
= 10,000 12,000
Efficiency
= 11,480 10,000
Demonstrated (measured) capacity =
Time required =

1.3 + 0.3 200

Actual hours =

standard hours
(efficiency) (utilization)

Time required =
Actual hours =

2.0 + 0.2 500 =


102
=
1.2 .75

47.5 hours per week

95.5 hours per week

117 standard hours per week

11,480
= 83.3%
= 114.8%
11,480 50 =
=

59

229.6 standard hours

61.3 standard hours


=

61.3
=
1.3 .70

102 standard hours


113.33 hours

67.36 hours

5.13
Order
quality
Release orders
120
340
Planned orders
560
780

Setup time
(hours)

Run time
(hours/piece)

Total time
(hours)

300

1.00

0.10

31.00

200

2.50

0.30

62.50

300

3.00

0.25

78.00

500

2.00

0.15

77.00

Total time (standard hours)

248.50

5.14
Order
quality
Release orders
125
345
Planned orders
565
785

Setup time
(hours)

Run time
(hours/piece)

200

0.25

0.10

20.25

70

0.40

0.05

3.90

80

1.00

0.20

17.00

35

0.50

0.15

5.75

Total time (standard hours)

5.15

46.90

Open orders for parts

Planned orders for parts

Week

123

12

10

456

15

10

15

Lead report
Week
Released load
Planned load
Total load

123
456
123
456

Total time
(hours)

1
38
18
0
0
56

2
26
8
17
13
64

3
17
8
32
18
75

60

5.16
Week

18

19

20

Released load

150

155

100

70

475

80

80

160

Total load

150

155

180

150

635

Rated capacity

150

150

150

150

600

30

35

Planned load

(over)/under

21

Total

5.17

10

Operation
time
(days)
111
2

20

130

30

155

Operation
number

Work
center

Queue
time
(days)

Arrival
date

Finish
date

127

131

134

142

145

147

Stores

150

5.18

10

Operation
time
(days)
110
4

20

120

30

130

Operation
number

Work
center

Queue
time
(days)

Arrival
date

Finish
date

176

182

185

190

193

197

Stores

200

61

MULTIPLE CHOICE QUESTIONS


1.

__________ is responsible for determining the capacity required and with methods of
making the capacity available.
a. Production planning
b. Master production scheduling
c. Production activity control
d. Capacity planning
e. Material requirements planning

2.

__________ is responsible for capacity planning at the master production schedule level
and _____ at the material requirements planning level:
I. Resource planning.
II. Rough-cut capacity planning.
III. Capacity requirements planning.
a. I and II
b. I and III
c. II and III
d. none of the above

3.

Available capacity in production planning is:


a. the amount of inventory that can be held in a warehouse
b. the quantity of work that can be performed in a given period of time
c. a measure of the ability of a plant to consume raw materials
d. all of the above
e. none of the above

4.

________ are generated by the priority planning system and involve the translation of the
priorities, generally given in units of product or some common unit, into hours of work
required at each work center in each time period:
a. Capacity requirements
b. Capacity bills
c. Work center reports
d. all of the above
e. none of the above

5.

Rated capacity is calculated taking into account work center ________ and ________ .
I. historical data
II. utilization
III. efficiency
a. I and II
b. I and III
c. II and III
d. none of the above

62

6.

A work center consists of 2 machines working 8 hours a day and 5 days a week.
Historically, utilization has been 80% and the efficiency 90%. The effective capacity, to the
nearest hour, would be:
a. 80 hours
b. 40 hours
c. 30 hours
d. 50 hours
e. 58 hours

7.

The available capacity will be influenced by:


I. Product specification.
II. Product mix.
III. Work effort.
IV. Units of measurement
a. I, II and III only
b. I, II and IV only
c. II, III and IV only
d. III only
e. IV only

8.

The percentage of time the work center is active compared to the available time is called:
a. efficiency
b. effectiveness
c. utilization
d. Murphy's factor
e. up-time

9.

The ratio of standard hours of work produced to hours actually worked is called:
a. efficiency
b. effectiveness
c. utilization
d. Murphy's factor
e. up-time

10. (Available time) (utilization) (efficiency) is called:


a. effectiveness
b. useful capacity
c. demonstrated capacity
d. rated capacity
e. work time

63

11. Which of the following is NOT an input needed in capacity requirements planning?
a. open shop orders
b. planned order releases
c. routings
d. time standards
e. rough-cut capacity
12. Information on the standard times for an operation will be found in:
a. the work center file
b. the routing file
c. the master file
d. the product file
e. the production file
13. Which of the following is the best statement?
a. open shop orders appear as scheduled receipts in the MRP
b. information on queue and wait time can be obtained from the work center file
c. the Gregorian calendar is suitable for production planning
d. a and b are true
e. b and c are true
14. A ________ shows the capacity required at each work center based on planned and released
orders for each time period of the plan.
a. work center profile
b. load profile
c. scheduled order profile
d. work-to-be-done report
e. work center file
15. One hundred units of part A are to be processed on a work center. The setup time is 2 hours
and the run time per piece is 10 minutes. The total standard time will be:
a. 2 hours 10 minutes
b. 3 hours 40 minutes
c. 10 minutes
d. 1000 minutes
e. 1120 minutes
16. In the short run, capacity can be altered by any of the following EXCEPT:
a. scheduling overtime
b. selecting alternate routings
c. reallocating the work force
d. purchasing new equipment
e. subcontracting out

64

17. A report that shows the future capacity requirements based on released and planned orders
for each time period of the plan is called:
a. load report
b. capacity report
c. order report
d. dispatch list
e. none of the above
18. Over the previous three weeks a work center produced 36, 43, and 35 standard hours of
work. What is the measured capacity?
a. 114 standard hours
b. 36 standard hours
c. 38 standard hours
d. 43 standard hours
e. cannot be determined with this data
19. A work center was available for work 80 hours, produced 74 standard hours of work and
actually worked 67 hours. What is the efficiency of the work center?
a. 92.5%
b. 110.4%
c. 108.1%
d. 119.4%
20. In one week a work center produced 130 standard hours of work. The actual hours worked
was 114. The efficiency is:
a. 80.8%
b. 87.7%
c. 92.3%
d. 114.0%
21. Determining the need for labor, machines, and resources to meet the production objectives
of the firm is called:
a. production control
b. sales and operations planning
c. capacity planning
d. all of the above
22. (Available time) (utilization) (efficiency) is called:
a. effectiveness
b. useful capacity
c. demonstrated capacity
d. rated capacity
e. work time

65

23. In one week a work center produces 130 standard hours of work. The hours scheduled are
120, and 105 hours are actually worked. The utilization is:
a. 80.8%
b. 87.5%
c. 92.3%
d. 108.3%
e. 123.8%

66

Answers.
1 d
2 c
10 d
11 e
19 b
20 d

3 b
12 b
21 c

4 a
13 d
22 d

5 c
14 b
23 b

6 e
15 e

67

7 a
16 d

8 c
17 a

9 a
18 c

PRODUCTION ACTIVITY CONTROL


CHAPTER 6
ANSWERS TO PROBLEMS
6.1

Required capacity = 3.5 + 0.233 600 = 143.3 standard hours

6.2

Queue at work center A


Work center A operation time
Wait time
Move time from A to B
Queue at work center B
Work center B operation time
Wait time
Move time from B to stores
Total manufacturing lead time

6.3

(550+ + 560) 5530

6.4

Queue at work center A


Work center A operation time
Wait time at A
Move time from A to B
Queue at work center B
Work center B operation time
Wait time at B
Move time from B to stores
Total manufacturing lead time

6.5

(313 + 300) 6400 =

=
=

25 60
50 + 100 5

=
=

35 60
60 + 100 5

=
=
=
=
=
=
=
=
=
=

1500
minutes
550
minutes
300
minutes
40
minutes
2100
minutes
560
minutes
300
minutes
180 minutes
5530
minutes
92 hours and 10 minutes

20.07%
=
=

40 60
60 + 50 5

=
=

35 60
30 + 50 6

10%

68

=
=
=
=
=
=
=
=
=
=

2400
minutes
310
minutes
600
minutes
60
minutes
2100
minutes
330
minutes
480
minutes
120 minutes
6400
minutes
106 hours and 40 minutes

6.6
PART B

OP.

OP.

S/A
OP.

OP.

PART C

SKY3
OP.

PART

170

175

180

OP.

185

190

195

200

WORKING

6.7

PART C

SUBASSY

PART
PART B

FINAL
OP
20

OP
10

ASSY

OP
30

TOOLING
90

95

100

105

110

115

120

DAYS

69

125

130

6.8

Q
Q1
Q2

=
=
=

100 units
60 units
40 units

SUA
RunA
SUB
RunB
Transit time

=
=
=
=
=

a.

MLT for A =
Transit time
MLT for B =
Total MLT

b.

MLT for A (Q1)= 50 + 9 60


Transit time
MLT for B (Q) = 30 + 6 100
Total MLT
Saving in MLT by overlapping

50 minutes
9 minutes per piece
30 minutes
6 minutes per piece
20 minutes

50 + 9 100 =
=
30 + 6 100 =
=

950
20
630
1600

=
=
=
=
=

minutes
minutes
minutes
minutes

590
minutes
20
630
1240
minutes
1600 1240 = 360 minutes

Instructor's note. Ask the students to prove that Q2 will arrive at operation B shortly
before Q1 runs out.
6.9

MLT before overlapping.


Work centre 10: 50 + 200 5
Transit time
Work centre 20: 100 + 200 7
Total MLT
MLT after overlapping.
Work centre 10: 50 + 75 5
Transit time
Work centre 20: 100 + 200 7
Total MLT
Saving in MLT
MLT =
50 + 9 100
MLT =
50 + 9 50
Saving in lead time

=
=
=
=
=

1050
minutes
30
minutes
1500 minutes
2580
minutes
43 hours

=
=
=
=
=
=

425
minutes
30
minutes
1500 minutes
1955
minutes
32 hours and 35 minutes
10 hours and 25 minutes

6.10

a.
b.
c.

=
=
=

950 minutes
500 minutes
450 minutes

6.11

MLT
=
50 + 50 + 50 9 =
Reduction in MLT
=

550 minutes
400 minutes

6.12

MLT before splitting


MLT after splitting =

=
460 + 50 3

6.13

240 + 240 + (50 3)

= 630 minutes
70

460 + 100 3 =
=
390 minutes

540 minutes

Lead time increases by 90 minutes.


MLT increases.
6.14a. Available capacity for each department = (8hrs-1hr) / day x five days = 35 hrs per week
Let X= the number of benches produced
Capacity in number of benches for the cut and sand department
2 * 5 min * X + 3 * X
= 35 * 60 minutes per hour
X = 161.5 benches per week
Capacity in number of benches for the assembly and paint department
(10 + 5 minutes) * X
= 35 * 60 minutes per hour
X = 140 benches per week
Maximum capacity per week is 140 benches.
6.14b. Hours per week cut and sand = 5 hrs (setup) +140 * (2 * 5 + 3) / 60 = 35 hours 20
minutes
Hours per week assembly and paint = 5 hrs (setup) + 140 * 15/60 = 40 hrs per week
6.14c The cut and sand employee has almost one hour per day of excess capacity. If he could
use this time to help setup and teardown the assembly and paint department then the
overall capacity would increase. Theoretically if all work was shared the total output
could reach 150 benches per week.
6.15

Available capacity =
80 hours per week
Let x
=
number of Ws to produce
TimeB + TimeC
= 80 hours
2 + 0.1x + 2 + 0.15 (2x)
= 80 hours
.4x
= 76
x
= 190
Produce 190 Ws a week.
Produce 150 Ss, 450 Ts, and 300 Us per week.

6.16

Available capacity
= 120 hours per week
Let x
= number of Ss to produce
= 120 hours
TimeT + TimeU
7 + 0.1(3x) + 8 + 0.2 (2x) =
120 hours
.7x
= 105
x
= 150
Produce 150 Ss a week.
Or: 3 x 150 = 450 Ts and 2 x 150 = 300 Us per week

71

6.17
Period

Total

Planned input

35

37

36

41

149

Actual input

33

33

31

43

140

Cumulative variance

11

Planned output

40

40

40

40

160

Actual output

39

35

40

38

152

Cumulative variance

Planned backlog

32

27

24

20

21

Actual backlog

32

26

24

15

20

6.18
Period

Total

Planned input

78

78

78

78

78

390

Actual input

82

80

74

82

84

402

12

Cumulative variance
Planned output

80

80

80

80

80

400

Actual output

87

83

74

80

84

408

10

Cumulative variance
Planned backlog

45

43

41

39

37

35

Actual backlog

45

40

37

37

39

39

72

6.19
Job

A
B

Process Arrival
time
date
(days)
5
123
2

124

Due
date
142
144

Operation
Sequencing rule
due
FCFS EDD ODD SPT
date
132
1
2
3
3
131

C
3
131
140
129
Jobs A & B will be on time, and Job C will be late.

6.20
Job

6.21

Work center 10
Start
Stop
day
day
1
7

Work center 20
Start
Stop day
day
8
10

16

17

20

17

21

22

23

Critical Ratio

=
Actual time remaining
Lead time remaining
Lead time
Actual time
remaining
Order Due date remaining
A
87
12
12
B
95
26
20
C
100
21
25
Sequence to run in: B, A, C.

73

CR
1
0.77
1.19

MULTIPLE CHOICE QUESTIONS


1.

________ is concerned with very short-term detailed planning of the flow of orders through
manufacturing:
a. Production planning
b. Master production scheduling
c. MRP
d. Production activity control
e. Master planning

2.

Planning the flow of work requires production activity control to:


I. Be sure the material needed is available.
II. Be sure the tooling needed is available.
III. Schedule the start and stop dates at each work center.
IV. Advise the plant supervisor of future orders.
a. all of the above
b. I, II and III
c. I, II and IV
d. II, III and IV
e. I, III and IV

3.

The activities of production activity control can be classified as:


I. Planning.
II. Implementation.
III. Control.
IV. Process control.
a. I, II and III
b. I, II and IV
c. II, III and IV
d. I, III and IV
e. all of the above

4.

Work authorization can be classified under the function of:


a. planning
b. scheduling
c. implementation
d. load leveling
e. control

74

5.

Which of the following are characteristics of intermittent manufacturing?


I. Work centers are arranged according to the routing.
II. Work centers are dedicated to producing a limited range of similar products.
III. Work flow through the shop is not constant.
IV. Throughput times are generally high.
a. I and II
b. I and III
c. I and IV
d. II and III
e. III and IV

6.

Which of the following files is used by PAC for planning?


I. Shop order master file.
II. Shop order detail file.
III. Item master file.
IV. Routing file.
a. all of the above will be used for planning
b. I and II
c. I and III
d. II and III
e. III and IV

7.

Which of the following files will contain information on manufacturing lead time and
quantity on hand?
a. item master
b. bill of material
c. work center file
d. shop order detail file
e. industrial engineer's file

8.

The ____ shows the total standard time required to produce one end product in each work
centre required for its manufacture:
a. work center bill
b. routing file
c. capacity bill
d. bill of material
e. none of the above

9.

Which file contains information on the efficiency and utilization of a work center?
a. efficiency file
b. utilization file
c. routing file
d. work center file
e. either a or b

75

10. A shop order for 1000 pieces is to be processed on work station 123. The setup time is 4
hours and the run time per piece is .08 hours. What is the required capacity on this work
center in standard hours?
a. 4.08
b. 0.08
c. 80
d. 84
e. 4000
11. All of the following are elements of manufacturing lead time EXCEPT:
a. design time
b. setup time
c. run time
d. wait time
e. move time
12. Which of the following statements is best?
a. the largest element of manufacturing lead time is queue
b. the larger the load, the longer the queue
c. if queue is reduced, the lead time and work in process will be reduced
d. all of the above are true
e. none of the above is true
13. A scheduling system in which the last operation on a routing is scheduled first and for
completion on the due date is called:
a. forward scheduling
b. backward scheduling
c. infinite scheduling
d. finite scheduling
e. none of the above
14. A scheduling system that assumes the required capacity will always be available is called:
a. forward scheduling
b. backward scheduling
c. infinite scheduling
d. finite scheduling
e. none of the above
15. Which of the following statements is best?
a. implementation is achieved by issuing a shop order to manufacturing
b. engineering drawings, bills of material and routings may be included in a shop
packet
c. the dispatch list is the instrument of priority control
d. all of the above are true
e. none of the above is true

76

16. Which of the following are methods of reducing manufacturing lead time?
I. Subcontracting.
II. Forward scheduling.
III. Operation overlapping.
IV. Operation splitting.
a. all of the above
b. I and II
c. II and III
d. II and III
e. III and IV
17. Operation overlapping means:
a. the same job running on two machines at the same time
b. using alternate routings
c. moving work to the next operation as a group of pieces is completed
d. running two or more jobs at the same time
e. locating work centers close together to reduce materials handling
18. Which of the following statements is best?
a. a bottleneck (capacity constraint resource) will control the throughput of all
products
processed by it
b. a time buffer should be established before a CCR
c. work centers feeding a CCR should work at full capacity
d. a and b are true
e. b and c are true
19. Which of the following statements is true?
I. Throughput is the total volume of production passing through a facility.
II. Throughput is controlled by the total capacity of a system.
III. Work centers feeding bottlenecks should be 100% utilized.
a. I only is true
b. I and II only are true
c. II and III only are true
d. II only is true
e. III only is true
20. Which of the following statements is best?
a. using a non-bottleneck 100% of the time produces 100% utilization
b. time saved at a non-bottleneck saves nothing
c. the capacity of a system depends on the capacity of the bottleneck
d. a and b only are true
e. b and c only are true

77

21. Which of the following is NOT a principle of managing bottlenecks?


a. a time buffer should be established after each bottleneck
b. the rate of material fed to a bottleneck should be controlled
c. do anything to increase the capacity of a bottleneck
d. use alternate routings
e. change the schedule
22. If the previous backlog was 20 units, the planned input was 25 units and the planned output
was 30 units the planned backlog would be:
a. 5 units
b. 10 units
c. 15 units
d. 20 units
e. 25 units
23. The following information is to be used in this and the next question. For the last week a
work center had a planned input of 40 standard hours and an actual input of 36 standard
hours. The planned output was 40, the actual output 42 standard hours and the beginning
backlog was 30 hours. The cumulative input variance was:
a. 0
b. 2
c. +2
d. 4
e. +4
24. The planned backlog was:
a. 30
b. 36
c. 40
d. 42
e. 66
25. Which of the following dispatching rules ignore due dates?
a. first come, first served
b. earliest operation due date
c. shortest processing time
d. a and b above both ignore due dates
e. a and c above both ignore due dates

78

26. Given the following information, which sequence will the orders be run in?

a.
b.
c.
d.
e.

ORDER
A
B
C
ABC
BCA
ACB
CBA
BAC

CRITICAL RATIO
1.5
1.0
0.7

27. If today is manufacturing day 100 and an order has a due date of 120 and a lead time
remaining of 25 days, the critical ratio would be:
a. 0.8
b. 1.2
c. 1.25
d. 0.25
e. 0.2
28. In a drum-buffer-rope scheduling system, the "drum" represents which of the following?
a. a drum of jobs to be selected
b. the master schedule for the operation
c. a safety stock of material
d. the constraint against too much being loaded into the master schedule
29. Which of the following is concerned with very short-term detailed planning of the flow of
orders through manufacturing?
a. sales and operations planning
b. master production scheduling
c. MRP
d. production activity control
30. A scheduling system that assumes the required capacity will NOT always be available is
called:
A. forward scheduling
B. backward scheduling
C. infinite scheduling
D. finite scheduling

79

31. An order for 100 of a product is processed on work center 123. The setup time is 60
minutes and the run time is 5 minutes per piece. If the order is run on two machines in the
work center, and the setups are made simultaneously, the elapsed time will be:
a. 560 minutes
b. 500 minutes
c. 250 minutes
d. 310 minutes
32. The selection and sequencing of available jobs to be run at individual work stations and the
assignment of these jobs to workers is called:
a. dispatching
b. scheduling
c. priority management
d. production control
33. Given the following data, which job(s) will be late if the shortest process time sequencing
rule is used?
Today is day 100.
Job
Process Due
Time
Date
A
4
104
B
1
106
C
5
109
a. all jobs will be on time
b. A and B will be late
c. A and C will be late
d. B and C will be late
34. Operation overlapping means:
a. the same job running on two machines at the same time
b. using alternate routings
c. moving work to the next operation as a group of pieces is completed
d. running two or more jobs at the same time on the same machine
e. locating work centers close together to reduce materials handling
35. Priority rules should be which of the following?
I. Simple to use.
II. Clear to users so they can understand them.
III. Followed without question.
IV. Consistent with the objectives of the planning system.
a. all the above
b. I, II, and III only
c. I, II, and IV only
d. II, III, and IV only
e. none of the above

80

Answers.
1 d
10 d
19 a
28 b

2
11
20
29

b
a
e
d

3
12
21
30

a
d
a
d

4
13
22
31

c
b
c
d

5
14
23
32

e
c
e
a

6
15
24
33

81

e
d
a
c

7
16
25
34

a
e
e
e

8
17
26
35

c
c
d
a

9 d
18 d
27 a

PURCHASING
CHAPTER 7
ANSWERS TO PROBLEMS
7.1
Profit would increase from 10% of sales to 12% of sales. This would represent a 20%
increase in profits.
7.2

Factor

Weight

Supplier

7.3

Rating of
Suppliers
A
B

Ranking of
Suppliers
A
B

Function

64

Cost

45

25

Technical 7
Credit terms 2
RANKING

5
8

7
4

35
16
160

49
8
154

Fixed cost
=
Variable cost
=
Unit (average) cost =

$5000
$5.00 per unit
5000 + 5.00 =
10,000

72

$5.50

Price looks high and there should be some room to negotiate.

82

MULTIPLE CHOICE QUESTIONS


1.

Which of the following is an objective of purchasing?


I. Obtain goods and services of the required specification and quality.
II. Obtain goods and services at the lowest cost.
III. Be sure the best possible service and delivery are provided by the supplier.
a. I only
b. II only
c. III only
d. IV only
e. all are objectives of purchasing.

2.

Which of the following is NOT a step in the purchasing cycle?


a. receipt and analysis of purchase requisition
b. selection of vendor
c. make up the specification for the product
d. issue a purchase order
e. receive and accept the goods.

3.

Purchasing departments usually have the responsibility and authority to:


a. legally commit the company to a contract
b. satisfy the needs of the user department
c. determine price and source
d. all of the above
e. none of the above.

4.

______ originates with the department or person who will be the ultimate user:
a. A purchase requisition
b. A purchase order
c. Vendor selection
d. any of the above
e. none of the above.

5.

The decision on what is the "best buy" involves consideration of:


a. functional requirements
b. price
c. quantity required
d. all of the above
e. none of the above.

6.

____________ is concerned with the end use of the item and what it is expected to do:
a. Quantity required
b. Functional specification
c. Production department
d. all of the above
e. none of the above.

83

7.

Which of the following is NOT a phase in providing user satisfaction?


I. Quality and production planning.
II. Quality and product design.
III. Quality and manufacturing.
IV. Quality and use.
a. all the above are phases in providing user satisfaction
b. I only
c. II only
d. III only
e. IV only.

8.

Functional specifications set out:


a. how the product is to work
b. the purpose for which the product is required
c. all those aspects or characteristics of a product that are determined by its final
use
d. none of the above.

9.

From the buyer's point of view the best quality is:


a. the most expensive
b. the least expensive
c. that which is best adapted to a particular use
d. that which technically does the best job
e. none of the above.

10. Which of the following statements is best in describing quality by specification?


a. standard specifications are set by government and non-government agencies
b. specifications are usually more costly to develop than using a brand
c. specifications tend to ensure more equitable competition
d. all of the above are true
e. none of the above are true.
11. Which of the following applies to standard products?
a. their prices are comparatively stable
b. they are quoted on the basis of list price less discounts
c. they are purchased ONLY after firm quotations
d. only a and b above apply
e. all of the above apply.
12. Products should be specified by brand because:
a. price levels of brand items are low
b. the number of potential suppliers is restricted
c. it is difficult to develop accurate specifications for an item
d. all of the above
e. a and b above.

84

13. In which of the following situations would a company probably specify by brand?
a. when buying small quantities
b. when the item to be bought is patented
c. when the item to be bought is made to an industry standard
d. a and b above
e. b and c above.
14. Which of the following is FALSE regarding description of a product by specification?
a. allows purchase from a number of sources
b. developing specifications is an inexpensive process
c. the minimum specifications set by the buyer are likely to become the maximum
furnished by
the supplier
d. all the above
e. b and c above.
15. Which of the following is an advantage of specifying by company-developed specification?
a. the cost of establishing specifications is low
b. it is always possible to draw up specifications for any product
c. unless a performance specification is used, the buyer takes responsibility for
performance
d. all of the above are advantages
e. none of the above is an advantage.
16. Which of the following is the most important responsibility of a purchasing officer?
a. getting the best price
b. getting the best quality
c. selecting the best source
d. ensuring goods are delivered on time
e. none of the above.
17. Which of the following is NOT a factor to consider when selecting a supplier?
a. technical ability
b. manufacturing capability
c. reliability
d. price
e. political affiliation.
18. Buyers should realize that when they make a continuing purchase they buy more than the
vendor's product. They also buy the supplier's:
a. managerial capabilities
b. procurement capabilities
c. production capabilities
d. technical capabilities
e. all the above.

85

19. Which of the following will help a purchasing officer select potential sources of supply?
a. trade journals
b. purchasing department's own records
c. advertising
d. all the above
e. none of the above.
20. Supplier goodwill is necessary because:
a. the buyer can expect price concessions
b. the buyer can expect presents from the vendor
c. the buyer and vendor depend upon each other for communication and problem
solving
d. all of the above
e. none of the above.
21. When using the "ranking method" of evaluating suppliers:
a. each supplier is ranked for overall suitability
b. important factors are selected and assigned a "weight"
c. suppliers are rated against each factor
d. weight and rating of each supplier is multiplied for each factor and the total
taken as the ranking of the supplier
e. all the above are used.
22. Which of the following is (are) a qualification(s) of a good supplier?
a. has adequate plant and facilities
b. has a sound financial position
c. has reasonable prices
d. all the above are qualifications of a good supplier
e. none of the above is a qualification of a good supplier.
23. Vendors' costs are important to a purchasing agent because:
a. they help in estimating a fair price
b. they help in negotiating a fair price
c. cost determines market price
d. a vendor is entitled to a profit just because he is in business
e. a and b above.
24. Special items will generally be purchased on the basis of a quotation. The purchasing agent
will select on the basis of:
a. the lowest price
b. the most reliable bidder
c. the preference of the department that will use the item
d. consideration of all the above
e. none of the above.

86

25. In comparing prices, which of the following factors should be considered?


a. base price
b. F.O.B. point
c. installation and tooling costs
d. all the above should be considered
e. none of the above should be considered.
26. A fair price is:
a. the lowest price
b. the lowest price that ensures a constant supply of the quality and allows the
seller to make a profit
c. a competitive price
d. all the above
e. b and c above.
27. Which of the following is a function of supplier scheduling and follow-up?
a. selecting suppliers
b. establishing specifications
c. releasing orders
d. price determination
e. negotiation.
28. Which of the following statements is true about planner/buyers?
I. Planner/buyers handle more components than planners do.
II. Planner/buyers issue material releases to suppliers.
III. Planner/buyers establish supplier delivery priorities.
IV. Planner/buyers negotiate prices with suppliers.
a. I and II are true
b. II and III are true
c. III and IV are true
d. I, II, and III are true
e. II, III, and IV are true.
29. Which of the following statements is true?
a. in contract buying, price and delivery are negotiated each time an order is
released.
b. contract buying assures suppliers they have a given amount of business and
commits them to allocating that amount of their capacity to the customer
c. contract buying is useful for short term purchases
d. EDI does not eliminate much of the paper work associated with buying
e. none of the above is true.

87

30. Intranet stands for...


a. a net that includes all who are connected to it.
b. an external net that can be used by all people
c. an internal net normally used within the boundaries of the company
d. an net shared by two or more companies
e. none of the above

88

Answers.
1 e
9 c
17 e
25 d

2
10
18
26

c
d
e
e

3
11
19
27

d
d
d
c

4
12
20
28

a
c
c
b

5
13
21
29

d
d
e
b

6
14
22
30

89

b
b
d
c

7 a
15 e
23 e

8 c
16 c
24 d

FORECASTING
CHAPTER 8
ANSWERS TO PROBLEMS
8.1

Forecast for month 4

255 + 279 + 231


3

255

Forecast for month 5

279 + 231 + 228


3

246

8.2

Actual
demand
60

70

40

50

57

70

53

65

53

Month

Forecast

62

8.3

Actual
demand
102

91

95

105

96

94

97

100

98

109

100

92

101

101

100

10

98

101

Month

11

Forecast

97

90

8.4

Forecast for February

8.5

Forecast

= (.15)(135) + (.85)(122) =

(.2)(85) + (.8)(100) =

123.95 = 124

97

8.6

Actual
demand
260

Forecast
demand
250

230

248

225

244

245

240

250

241

Month

243

8.7

Actual
demand
102

91

95

96

105

96

94

98

100

97

109

98

92

100

101

98

10

98

99

Month

11

Forecast

99

The difference between the two forecasts for Month 11 = 2 (99-97).

91

8.8

Actual
demand
103

112

101

113

104

120

106

126

110

128

114

138

118

141

123

Week

Forecast
100

128
140 175 =

8.9

Seasonal index =

8.10

Average quarterly demand =


Forecast for first quarter =

8.11

.80

200
200 0.8 =

160

Average months demand =


1800 12 = 150
January seasonal index
=
95 150 = 0.6
January forecast
= 0.6 2000 12 =
100

92

8.12
Month

Average demand

Seasonal index

January

30

0.28

February

50

0.46

March

85

0.78

April

110

1.01

May

125

1.15

June

245

2.25

July

255

2.34

August

135

1.24

September

100

0.92

October

90

0.83

November

50

0.46

December

30

0.28

Total

1305

8.13
Month

Seasonal index

Forecast

January

0.28

47

February

0.46

77

March

0.78

130

April

1.01

168

May

1.15

192

June

2.25

375

July

2.34

390

August

1.24

207

September

0.92

153

October

0.83

138

November

0.46

77

December

0.28

47

93

8.14

Deseasonalized April demand

1440 2.5 = 576 units

8.15
Quarter
1

Actual Seasonal Depersonalized


demand
index
demand
130
0.62
210

170

1.04

163

375

1.82

206

90

0.52

173

Total

765

a. Deseasonalized last month's demand =


150 1.2
= 125
b. Deseasonalized forecast for next month = alpha (last periods deseasonalized demand)
+ (1 alpha) (last periods deseasonalized forecast) = .25 (125) + (1 0.25) (100) = 106.25
=
0.2 125 + .8 100
=
105
c. Forecast of seasonal demand
=
0.8 106.25
=
85

8.16

8.17
Actual Absolute
demand deviation
1.14
342.85

Month

Forecast

December

300

January

400

1.52

457.14

February

200

0.76

228.57

March

150

0.57

171.42

Total

1050

Absolute
deviation
25

8.18
Period

Forecast

110

Actual
demand
85

110

105

110

120

10

110

100

10

110

90

20

Total

550

70

MAD = 14

94

8.19

100

Actual
demand
105

Absolute
deviation
5

105

95

10

110

90

20

115

135

20

120

105

15

125

120

Total

675

650

75

Period

Forecast

MAD = 12.5
8.20
Period Forecast Actual Deviation

Cumulative Tracking
deviation
signal
10
0.67

100

110

10

105

90

15

0.33

110

85

25

30

2.00

115

110

35

2.33

120

105

15

50

3.33

125

95

30

80

5.33

Period 6.
Yes. From period 2 on, all tracking signals are negative and increasingly so. This indicates
demand is falling short of forecast.

95

MULTIPLE CHOICE QUESTIONS


1.

Which of the following statements is best statement about forecasting?


I. It must be done by all who wish to meet the demands of the future.
II. Companies who make to order to NOT have to forecast.
a. I and II are true
b. I only is true
c. II only is true
d. neither I nor II are true

2.

Which of the following is NOT a component of a demand pattern?


a. trend
b. standard deviation
c. seasonal variation
d. random variation
e. all of the above are components of a demand pattern

3.

Given this product tree which item(s) should be forecast?


A
B
D
a.
b.
c.
d.
a.

4.

C
E

only A
A, B and C
D and E
B, C, D, and E
all items should be forecast

Which of the following is the best statement about the general principles of forecasting?
a. forecasts are more accurate for larger groups of items
b. forecasts are more accurate for nearer periods of time
c. every forecast should include an estimate of error
d. all of the above are general principles of forecasting
e. none of the above is a general principle of forecasting

96

5.

Which of the following statements is best?


a. dependent demand items should be forecast
b. a forecast for sales next week will not be as accurate as for a year from now
c. forecasts for families of products should be built up from individual product
forecasts
d. all of the above are true
e. none of the above is true

6.

Which of the following statements is best?


a. if we wish to forecast demand, then past sales must be used for the forecast
b. forecasts made in dollars for total sales should be used for manufacturing
c. forecasts should be made for all items, models, and options manufactured
d. all of the above are true
e. none of the above is true

7.

A firm manufactures a line of vacuum cleaners composed of standard, custom and deluxe
models. All are essentially the same except for the options and add-ons. What should they
forecast?
a. the total of all models
b. each model
c. each model and add the forecasts together
d. all of the above
e. none of the above

8.

Which of the following is NOT true?


a. number of orders shipped is a good measure of demand for an item
b. circumstances relating to historical data should be recorded
c. demand for different groups should be recorded separately
d. none of the above is true

9.

Which of the following statements is best regarding forecasting techniques?


a. qualitative techniques are based on judgment
b. techniques that use external economic indicators are classified as extrinsic
c. intrinsic techniques use historical data
d. all of the above are true
e. none of the above is true

10. What important assumption is made about statistical (quantitative) forecasting methods?
a. the past is a valid indicator of the future
b. demand trend is seldom linear
c. seasonal variations are small
d. random variations are small
e. all of the above

97

11. Which of the following methods can be used to forecast the demand for a NEW product?
a. equation fitting
b. moving averages
c. qualitative techniques
d. all of the above
e. none of the above
12. A forecasting technique that takes the average demand for some past number of periods is
called:
a. trend time analysis
b. moving average
c. exponential smoothing
d. none of the above
e. all of the above
13. Demand over the past three months has been 700, 750, and 900. Using a three-month
moving average, what is the forecast for month four?
a. 700
b. 750
c. 900
d. 783
e. 822
13. The old forecast was for 200 units and last month's sales were 225 units. If (alpha) is 0.2
what is the forecast for next month?
a. 200
b. 225
c. 212
d. 205
e. 210
14. Select the one best answer from the following:
a. demand fluctuations that depend on the time of the year, week or day are called
seasonality
b. The seasonal index is an estimate of how much the demand during the season
will be above or below the average demand
c. seasonality ALWAYS occurs in summer, winter, spring and fall
d. a and b are true
e. b and c are true

98

15. If the average quarterly demand is 200 units and the first quarter demand is 350 units, what
is the seasonal index for the quarter?
a. .57
b. 200
c. 350
d. 1.75
e. none of the above
16. Select the one best answer from the following:
a. deseasonalized data should be used for forecasting
b. seasonalize the base forecast to predict actual demand for future periods
c. actual sales should only be compared on a month-to-month basis
d. a and b are best
e. b and c are best
17. If the February demand for a product is 5,000 units and the seasonal index for February is
0.75, what is the deseasonalized February demand?
a. 3,750
b. 6,667
c. 8,750
d. 10,000
e. 15,000
18. Forecast error will be caused by:
a. random variation from the average demand
b. errors in forecasting average demand
c. differences in lead times
d. a and b above
e. none of the above
19. Select the one best answer from the following:
a. the mean absolute deviation can be used as a measure of forecast error
b. usually forecast error is distributed normally about the average demand
c. in a normal distribution the error will be within 1 MAD of the average about
60% of the
time
d. all the above are true
e. none of the above is true

99

20. Select the one best answer from the following:


a. forecasts do not need to be tracked
b. forecast error does not need to be measured
c. when actual demand exceeds a reasonable error, it should be investigated to
discover the cause
of the error
d. all the above are true
e. none of the above is true
21. Forecasts are far more accurate for which of the following?
a. Short term
b. Individual items
c. Product families
d. End use components
22. Forecasts are far more accurate for which of the following?
a. Short term
b. Individual items
c. Product families
d. End use components
23. Which of the following is good for short-range forecasts, can detect trends, but lags the
trend?
a. Exponential smoothing
b. Stable forecasting
c. Forecast smoothing
d. Moving average
24. Which of the following is NOT a source of demand?
a. Internal customers
b. External customers
c. Stockholders
d. Spare parts

100

Answers.
1 b
2 b
10 a
11 c
19 d
20 d

3 a
12 b
21 c

4 d
13 d
22 b

5 e
14 d
23 a

6 e
15 a
24 c

101

7 a
16 d

8 a
17 d

9 d
18 a

INVENTORY FUNDAMENTALS
CHAPTER 9
ANSWERS TO PROBLEMS
11 10,000
365

Average annual inventory in transit

9.2

Average annual reduction in inventory in transit = 3 $2,000,000


365

9.3

Annual carrying cost =

(.10 + .06 + .07)($1,000,000)

9.4

Annual carrying cost =

(0.1 + 0.25 + 0.5)($10,000) = $8,500

9.5

Average ordering cost =


Annual ordering cost =

$90,000 + $25= $35


9,000
35 $9,000 = $315,000

Annual ordering cost =


Annual carrying cost =

$75,000 + $25 5,000 = $200,000


(.08 + .06 + .10)($250,000) = $60,000

9.6

9.1

9.7

Sales
Production
Ending
inventory
Average
inventory
Inventory cost

Quarter Quarter Quarter Quarter


Total $
1
2
3
4
1000
2000
3000
2000
8000
2000

2000

2000

2000

1000

1000

500

1000

500

1500

3000

1500

102

6000

301.4 units
=

$16,438.36

$230,000

9.8
Quarter
1
Forecast
demand
Production
Ending
inventory
Average
inventory
Inventory cost

Quarter
2

Quarter
3

Quarter
4

Total $

5000

8000

8000

9000

30000

7500

7500

7500

7500

30000

2500

2000

1500

1250

2250

1750

750

7500

13500

10500

4500

36000

Annual cost of carrying safety stock = $6 4 100 = $2,400


9.9
Quarter
1
Forecast
demand
Production
Ending
inventory
Average
inventory
Inventory cost

9.10

Quarter
2

Quarter
3

Total $

3000

4000

7000

6000

20000

5000

5000

5000

5000

20000

2000

3000

1000

1000

2500

2000

500

3000

7500

6000

1500

Owners' equity =
=

assets liabilities
$2,000,000 $1,600,000

9.11

Assets =

9.12

Revenue
Direct labor
= $700,000
Direct material
= $900,000
Factory overhead
= $700,000
Gross margin
General and administrative expense
Net income

9.13

Quarter
4

liabilities + owners' equity =

Profit would increase by $200,000

103

18000

= $400,000

$4,000,000 + $1,200,000 = $5,200,000


$3,000,000
=
=
=
=

$2,300,000
$700,000
$300,000
$400,000

9.14

a.

Turns ratio

annual cost of goods sold


average inventory

$12,000,000
$2,500,000

4.8

b.

Average inventory = annual cost of goods sold = $12,000,000 = $1,200,000


turns
10
Reduction in inventory = $2,500,000 $1,200,000 = $1,300,000
c.

9.15

9.16

Annual savings

= 20% $1,300,000

= $260,000

a.

Turns ratio

$30,000,000
$10,000,000

b.

Average inventory

$30,000,000
10

$3,000,000

c.

Reduction in inventory
Annual savings

Average daily usage =


Days of supply
=

=
=

$10,000,000 $3,000,000 = $7,000,000


20% $7,000,000
= $1,400,000

7200 240 =
600 30 =

9.17

Annual
unit
usage
21000

5000

1600

$3

$4,800

12000

$1

$12,000

1000

50

$50

$2,500

800

$2

$1,600

10000

$3

$30,000

4000

$1

$4,000

10

5000

$1

$5,000

Part
number

Total

Unit
cost $
$1

Annual $
usage
$21,000

$40 $200,000

$100 $100,000

$380,900

104

30 units
20 days

Part
number
2

Annual $ Cumulative Cumulative Cumulative


Class
usage
$ usage
% $ usage % of items
$200,000
$200,000
52.51
10
A

$100,000

$300,000

78.76

20

$30,000

$330,000

86.64

30

$21,000

$351, 000

92.15

40

$12,000

$363,000

95.30

50

10

$5,000

$368,000

96.61

60

$4,800

$372,800

97.87

70

$4,000

$376,800

98.92

80

$2,500

$379,300

99.58

90

$1,600

$380,900

100.00

100

9.18

Annual
unit
usage
200

Part
number

Unit
cost $

Annual $
usage

$10

$2,000

15000

$4

$60,000

60000

$6 $360,000

15000

$15 $225,000

1400

$10

$14,000

100

$50

$5,000

25000

$2

$50,000

700

$3

$2,100

25000

$1

$25,000

10

7500

$1

$7,500

Total

$750,600

105

Part
number
3

Annual $ Cumulative Cumulative Cumulative


Class
usage
$ usage
% $ usage % of items
$360,000
$360,000
47.96
10
A

$225,000

$585,000

77.94

20

$60,000

$645,000

85.93

30

$50,000

$695, 000

92.59

40

$25,000

$720,000

95.92

50

$14,000

$734,000

97.79

60

10

$7,500

$741,500

98.79

70

$5,000

$746,500

99.45

80

$2,100

$748,600

99.73

90

$2,000

$750,600

100.00

100

106

MULTIPLE CHOICE QUESTIONS


1.

Which of the following statements is best about inventory management?


a. inventories and production can be managed separately
b. inventory is not important at the production planning level
c. inventories are usually insignificant on the balance sheet
d. all the above are true
e. none of the above is true

2.

___________ are materials that have entered the production process and ___________ are
materials that are used in the production process but do not become part of the product.
I. Raw materials
II. Work in process
III. Finished goods
IV. Maintenance, repair and operational supplies
a. I and II
b. II and III
c. III and IV
d. I and III
e. II and IV

3.

Inventories that are built up in advance of a peak selling season, a promotion program or a
plant shut-down are known as:
a. lot-size inventories
b. transportation inventories
c. safety stocks
d. anticipation inventories
e. none of the above

4.

Transportation inventories can be reduced by:


a. reducing transportation time
b. reducing order quantities
c. increasing order quantities
d. reducing the order point
e. none of the above

5.

Items that are purchased or manufactured in quantities greater than needed immediately
create ________ inventories:
a. anticipation
b. lot size
c. hedge
d. any of the above
e. none of the above

107

6.

Select the one best of the following statements:


a. inventories allow manufacturing to level out production and to satisfy peak
demand
b. inventories allow manufacturing to reduce production runs, reducing unit cost
c. inventories allow manufacturers to operate different work centers at the same
output
d. all the above are true
e. none of the above is true

7.

Which of the following company objectives are in conflict?


I. Maximize customer service.
II. Low-cost plant operation.
III. Minimum inventory investment.
a. I, II and III
b. I and II, not III
c. I and III, not II
d. II and III, not I
e. none

8.

In managing inventory, the problem is to balance the inventory investment with:


I. Customer service.
II. Costs associated with changing production levels.
III. Costs of placing orders.
IV. Transportation costs.
a. II and III only
b. III and IV
c. I, II and III only
d. II, III and IV only
e. I, II, III, and IV

9.

Which of the following costs are relevant to inventory management decisions?


a. carrying costs
b. ordering costs
c. capacity-related costs
d. all the above
e. none of the above

10. Which of the following is NOT a cost of carrying inventory?


a. capital costs
b. storage costs
c. purchase cost
d. all the above
e. none of the above

108

11. Which of the following are considered ordering costs?


I. Production control costs.
II. Lost capacity costs.
III. Risk costs.
a. I, II and III
b. I and II
c. I and III
d. II and III
e. none of the above
12. Which of the following statements is NOT true?
a. the annual cost of ordering depends on the number of orders per year
b. the annual cost of ordering can be reduced by ordering less at any one time
c. the annual cost of carrying inventory can be decreased by ordering less at one
time
d. all the above are true
e. none of the above is true
13. Which of the following costs would NOT be included in the cost of placing an order?
a. setup costs
b. costs of placing a purchase order
c. back-order costs
d. all the above
e. none of the above
14. Which of the following would NOT be included in calculating inventory carrying costs?
a. capital costs
b. ordering costs
c. obsolescence costs
d. all the above
e. none of the above
15. Which of the following equations is correct?
a. Assets
=
liabilities +
revenue
b. Profit
=
revenue
+
owners equity
c. Liabilities =
assets owners equity
d. Revenue
=
accounts receivable liabilities
16. If the annual cost of goods sold is $10,000,000 and the average inventory is $2,000,000,
what is the turns ratio?
a. $8,000,000
b. 5
c. 0.2
d. 20%
e. cannot be calculated from the information given

109

17. If there are 20 working days in a month, the monthly usage is 660 units, and there are 100
units on hand, approximately how many days supply are there?
a. 3
b. 5
c. 7
d. 33
18. Which of the following statements is most accurate?
a. about 20% of the items will usually account for about 80% of the total value
b. 'A' class items should have the tightest possible control
c. the general rule using the ABC approach is to have plenty of everything in stock
d. a and b only are true
e. none of the above is true
19. Of the following statements:
I. 'A' items usually account for about 70%80% of the total usage value.
II. About 50% of the items usually account for 50% of the value.
III. 'C' items should be given the top priority in inventory management.
a. I and II are true
b. II and III are true
c. I and III are true
d. only III is true
e. only I is true
20. Which of the following statements is best?
a. two items with the same part number but in two different inventories would be
one stock
keeping unit (SKU)
b. two white shirts of different sizes in the same inventory would be one SKU
c. two items with the same part number in the same inventory would be one SKU
d. all the above are true
e. none of the above is true
21. Delivery of goods from a supplier is in transit for 14 days. If the annual demand is 2600
units, what is the average annual inventory in transit?
a. 99.7 units
b. 100 units
c. 1.97 units
d. cannot be determined from the data given

110

22. A company carries an average annual inventory of $1,000,000. If the cost of capital is 10%,
storage costs are 8%, and risk costs are 7%, what does it cost per year to carry this
inventory?
a. $100,000
b. $80,000
c. $70,000
d. $250,000
e. cannot be determined from the data given
23. Which of the following would not be considered work-in-process inventory?
I. Finished goods in the stockroom.
II. Processed material waiting for inspection.
III. Raw materials not issued.
IV. Components in queue ahead of a milling machine.
a. I and II
b. I and III
c. I and IV
d. II and III
24. Which of the following are reasons for keeping inventory?
I. To allow for goods in transit.
II. To build up stock for seasonal demand.
III. To reduce production costs.
IV. To guard against uncertainty in supply and demand.
a. I, II and III only
b. II, III and IV only
c. II and IV only
d. all the above are valid reasons
25. Given the following information, calculate the inventory turns.
Sales
= $200,000,000
Cost of sales
= $160,000,000
Average inventory = $ 40,000,000
Carrying cost
= 12%
a. 0.20
b. 0.25
c. 4.0
d. 5.0

111

26. All of the following are reasons to keep inventory EXCEPT:


a. Allow flexibility in production scheduling
b. Couple supply with demand
c. Meet fluctuations in product demand
d. Provide a safeguard against delivery time variations

112

Answers.
1 e
9 d
17 a
25 c

2
10
18
26

e
c
d
b

3 d
11 b
19 e

4 a
12 b
20 c

5 b
13 c
21 a

6 a
14 b
22 d

113

7 a
15 c
23 b

8 e
16 b
24 d

ORDER QUANTITIES
CHAPTER 10
ANSWERS TO PROBLEMS
10.1 and 10.2
Order quantity (units)
1000
500
a.

Average inventory

b.

Orders per year

order quantity
2
annual demand
order quantity
=

c.
Inventory carrying cost
$1000

10.3

d.

Annual ordering cost =

e.

Total annual cost =


=
=
=
=

a.

EOQ =

b.

Number of orders per year

500

10.4

5.2

Qci

2
AS
Q

c. + d.

A
S
c
i

250

$520

260

$1020

$1260

400,000 units
$32
$8.00
20%
2 AS =
ic

2 x 400,000 x32
= 4, 000units
.2 x8

A
Q

c. Cost of ordering
Cost of carrying

= AS =
Q
= Qic =
2

Total Cost

114

400,000
4000

$500

100

400,000 32 = $3200
4000
4000 .20 8 = $3200
2
= $6400

10.4

A =
S =
i =

$800,000
$32
20%

a.
EOQ =

2 x800,000 x32
= $16, 000
.2

2 AS =
i

b. Number of orders per year =


Q

c. Cost of ordering

Cost of carrying

AS
Q
Qic
2

=
16,000

800,000 32 = $1600
16,000
$16,000 .2 = $1600
2
= $3200

Total Cost
d. Results are not the same.
10.5

EOQ =

A
S
C
i

=
=
=
=

10,000 units
$200
$10.00
20%

2 x10,000 x 200
= 1414units = 1414 x$10 = $14,140
.2 x10

10.6
No discount
Unit price

Discount

$10.00

$9.70

Lot size (dollars)

$5, 480.00

$9,700.00

Average inventory
Number of orders per
year
Purchase cost (dollars)
Carrying cost (dollars)
20%
Ordering cost$30 per
order
Total cost (dollars)

$2,740.00

$4,850.00

18.25

10

$100,000.00

$97,000.00

$548.00

$970.00

$547.45

$300.00

$101,095.45

$98,270.00

Savings (dollars)

$2,825.45

115

800,000 = 50

10.7

A = 400,000 units = $3,200,000


C = $8.00

S = $32
i = 20%

EOQ = $32,000 = or 32,000/8 = 4,000 units


Discounted order quantity = 5000 units or
Discount on $40,000 order = 3%.
No discount
Unit price

$40,000 .97

Discount

$8.00

$7.76

Lot size (dollars)

$32,000.00

$38,800.00

Average inventory
Number of orders per
year
Purchase cost (dollars)
Carrying cost (dollars)
20%
Ordering cost$30 per
order
Total cost (dollars)

$16,000.00

$19,400.00

100

80

$3,200,000.00 $3,104,000.00
$3,200.00

$3,880.00

$3,200.00

$2,560.00

$3,206,400.00 $3,110,440.00

Savings (dollars)

$95,960.00

10.8

2500

50

New Lot
Size = K
AD
250

900

30

150

121

11

55

Item

Annual
Demand

AD

116

$38,800

10.9

Annual
Demand
$14,400

Orders per
Year
5

$4,900

70

$1,600

40

Totals

$20,900

15

230

Item

AD
120

K = 230 15 = 15.33
10.10
Item

Annual
Usage

Present
orders per
year

Present
Lot Size

AD

New Lot
Size

New
Orders per
year
= K AD
N = AD /Q
$2,208.33
10.19

$22,500

$3,750.00

150

$5,625

$937.50

75

$1,104.17

5.10

$1,600

$266.67

40

$588.89

2.72

Totals

$29,725

18

$4,954.17

265

$3,901.39

18.00

Average inventory

10.11
Item

$2,477.08

Annual
Usage

Present
orders per
year

Present
Lot Size

$1,950.69

AD

New Lot
Size

New
Orders per
year
= K AD
N = AD /Q
$1,500.00
6.67

$10,000

$2,500.00

100

$6,400

$1,600.00

80

$1,200.00

5.33

$3,600

$900.00

60

$900.00

4.00

$1,600

$400.00

40

$600.00

2.67

$400

$100.00

20

$300.00

1.33

$22,000

20

$5,500.00

300

$4,500.00

20.00

Totals

Average inventory

$2,750.00

K = 300 20 = 15

117

$2,250.00

10.12 EOQ =
1150 units
Usage =
15,600 units per year
= 15600 52 = 300 units per week
Period order quantity =
1150 300 = 3.8 4 weeks
10.13
Weekly average demand =
POQ = 300 80.77 =
Week
Net
requirements
Planned
order
receipts

4200 52 = 80.77 units per week


3.7 4 weeks

Total

100

75

90

90

85

70

80

40

630

355

275

Planned order period 1 = 355 units


Planned
order period 5 = 275 units
10.14
EOQ = 200 units
Week
1
Net
75
requirements
Planned
200
order receipt
Ending
125
inventory

10

Total

100

60

100

80

70

60

60

605

200
25

165

200
165

65

185

200
115

55

55

195

1150

Weekly average demand = 605 10 = 60.5 units per week


POQ = 20060.5 = 3.3 3 weeks
Week
1
2
3
Net
75
100
60
requirements
Planned
235
order receipt
Ending
160
60
0
inventory

10

Total

100

80

70

60

60

605

60

560

250
0

150

118

120
70

60

10.15 A = 120 x 52 = 6,240


S = $600
i = .16
c = $24
Demand rate = 120 per week
Production rate = 300 per week
EOQ = SQRT((2 x 6240 x 600) / (.16 x 24 x (1 120/300))) = 1803 units

119

MULTIPLE CHOICE QUESTIONS


1.

Which of the following are NOT assumptions on which the economic order quantity (EOQ)
is based?
a. demand is relatively constant and known
b. the item is produced continuously
c. order preparation costs, inventory carrying costs and lead times are constant and
known
d. replacement occurs all at once
e. all of the above are true assumptions

2.

In developing the standard economic order quantity formula the following assumption(s) is
(are) made:
a. demand for the item is relatively uniform
b. replenishment is in lots or batches that arrive at once
c. lead time is constant
d. all of the above are assumed
e. none of the above is assumed

3.

In determining the economic order quantity (EOQ) the following costs are considered:
a. costs of a stockout and ordering costs
b. costs of a stockout and inventory holding costs
c. ordering costs and inventory carrying costs
d. ordering costs and costs of changing production levels
e. inventory holding costs and costs of changing production levels

4.

If the order quantity is increased the annual cost of carrying inventory will:
a. increase
b. decrease
c. remain the same
d. not be affected
e. none of the above

5.

Assuming the cost per order is constant, increasing the order quantity will cause annual
ordering costs to:
a. decrease
b. increase
c. remain the same
d. increase at a decreasing rate
e. cannot be determined

120

6.

In the simple EOQ model annual inventory carrying costs and annual ordering costs vary:
a. according to the time of year
b. with seasonally adjusted demand
c. with the order quantity
d. do not vary in any way
e. in an unknown manner

7.

While working a simple EOQ problem, you notice that, with a certain lot size, the annual
ordering cost is exactly the same value as the annual inventory carrying cost. Which of the
following is true?
a. the lot size is the economic order quantity
b. total cost is at its maximum
c. the annual carrying cost will decrease if the order quantity is increased
d. all of the above
e. none of the above; the phenomenon is merely a coincidence

8.

A firm uses $20,000 of an item per year. The carrying cost is 25%, the cost of ordering is
$10 and the order quantity is $1,000. The annual total cost of carrying plus ordering would
be:
a. $2,500
b. $5,000
c. $100
d. $325
e. none of the above

9.

For a particular item the usage is 2000 units per year, the ordering cost is $10, the inventory
carrying cost is 20% and the unit cost is $5. The economic order quantity is:
a. 20 units
b. 200 units
c. 2000 units
d. 400 units
e. 4000 units

10. If the economic order quantity is to be calculated in DOLLARS, then:


a. the annual demand must be stated in dollars
b. ordering costs MUST be stated on a per UNIT basis
c. carrying costs are stated in dollars per unit
d. all the above are true
e. none of the above is true

121

11. A supplier offers a quantity discount. Which of the following will influence the decision to
accept the discount or not?
a. purchase cost
b. cost of carrying inventory
c. cost of placing one order
d. all of the above are relevant
e. none of the above is relevant
12. If a purchase discount is taken:
1. There is a saving in purchase cost.
2. Ordering costs are reduced.
3. Carrying costs are increased.
4. There is not necessarily a net saving.
a. all the above are true
b. 2 and 3 are true
c. 3 and 4 are true
d. 2 and 4 are true
e. 3 and 4 are true
13. For a certain group of items the cost of carrying inventory and the cost of placing orders is
not exactly known but is about the same for all the items. The company has calculated K =
20 for these items. If one item has an annual demand (A) = $10,000 the NEW order
quantity should be:
a. $2,000
b. $10,000
c. $20,000
d. $50,000
e. none of the above
14. Which of the following statements is correct?
a. you must know the ordering cost to use the EOQ concept
b. quantity discounts will not change the total inventory costs of the item
c. inventory levels can be lowered by raising the order quantity
d. if stock is not received all at once into inventory then EOQ formula can be
modified and used
e. none of the above is correct
15. The EOQ for an item is 5500 units and the annual demand is 78,000 units. What is the
period order quantity?
a. 14.18
b. 0.27
c. 3.67
d. 4
e. cannot be determined from the given data

122

16. Which of the following statements is best?


I. The EOQ should be used with lumpy demand.
II. Transportation cost should be included in the cost of ordering.
III. Anticipation inventory should be built based on capacity and future demand.
a. I and II only are true
b. I and III only are true
c. II and III only are true
d. all the above are true
e. none of the above are true
17. Using the POQ method of ordering, calculate the total cost of carrying and ordering
inventory for the 6 week period shown. Use a POQ = 3 weeks for your answer.
Week
Net requirements
Planned order receipts
Ending inventory

1
60

2
40

3
10

4
50

Cost to place an order = $100.00


Cost to carry inventory = $1.00 per unit per week
Annual demand = 1,500 units
Cost per unit = $200.00
Opening inventory = 0 units
a. $140
b. $280
c. $340
d. $400
e. none of the above

123

5
20

6
30

Answers.
1 b
2 d
10 a
11 d

3 c
12 a

4 a
13 a

5 a
14 d

6 c
15 c

124

7 a
16 c

8 d
17 c

INDEPENDENT DEMAND ORDERING SYSTEMS


CHAPTER 11
ANSWERS TO PROBLEMS
11.1
Average inventory =
Order point

1600 + 100 =
2
4 125 + 200 =

900 units

10 100 + 200
2
6 100 + 200 =

=700 units

700 units

11.2
Average inventory =
Order point

11.3
Period
1

Actual
Deviation
Deviation
demand
squared
500
0
0

600

100

10000

425

75

5625

450

50

2500

600

100

10000

575

75

5625

375

125

15625

475

25

625

525

25

625

10

475

25

625

Total

5000

51250

Average demand
= 500 units
Sum of the squares of deviations = 51250
Average square deviation = 51250 10 = 5125
Sigma
= 5125 = 71.59 units

125

800 units

11.4
Period Actual Deviation Deviation
demand
squared
1
1700
300
90000
2

2100

100

10000

1900

100

10000

2200

200

40000

2000

1800

200

40000

2100

100

10000

2300

300

90000

2100

100

10000

10

1800

200

40000

Total

20000

340000

Average demand = 2000 units


Sum of the squares of deviations
= 340,000
Average of the squares of the devation = 340,000 10 = 34,000
Sigma = 34,000 = 184.39 units
11.5

a.
b.

11.6

Safety stock
Order point
Safety stock
Order point

=
=
=
=

zero
DDLT + SS = 200 + 0 = 200 units
1.04 150 =
156 units
156 + 200 =
356 units

Safety factors taken from Figure 11.5


Service
Level
75
80
85
90
95
99.99

Safety
Factor
0.67
0.84
1.04
1.28
1.65
4.00

Safety
Stock
67
84
104
128
165
400

Change in
Safety Stock
17
20
24
37
235

126

11.7

Orders per year


= 10,000 750
=
13.33
Service level
= 12.33 13.33 100 =
92.5%
Safety stock
= 1.42 150
=
213 units
Hint: Use the average of the SF for 90% and 94% i.e. 1.28 and 1.56
Average inventory = 750 2 + 213
=
588 units
Order point
= 10,000 2 + 213 =
598 units
52

11.8

Orders per year

Service level
=
Safety stock
=
Average inventory =

11.9

Order point

Orders per year

Service level
=
Safety stock
=
Average inventory =
Order point

250 52
800
15.25 16.25
1.56 175
800 + 273
2
250 3 + 273

16.25

=
=
=

94%
273 units
673 units

1023 units

500 52
2500
9.4 10.4
01.28 100
2500 + 128
2
500 4 + 128

10.4

=
=
=

90.4%
128 units
1378 units

2128 units

11.10
SIGMA (LTI)

= SIGMA (FI)

LTI
FI

3
1
= 173 units

= 100

11.11
Safety stock (new) = Safety stock (old)
= 200

int erval[ new]


int erval[ old ]

5
3

= 258 units

127

11.12
New safety stock =
=

Old safety stock


150

3
1

Old lead time


New lead time

= 260 units

11.13
New safety stock =

200

6
= 173 units
8

11.14
New safety stock =

8
6

200

= 231 units

11.15
Week
1

Actual Deviation Deviation


Demand
squared
2100
100
10000

1700

-300

90000

2600

600

360000

1400

-600

360000

1800

-200

40000

2300

300

90000

2200

200

40000

1600

-400

160000

2100

100

10000

10

2200

200

40000

Totals

20000

1200000

128

a. Average squared deviation

= 1,200,000 10 = 120,000

b. Sigma

= 120, 000 = 346 units

b. Sigma for lead time interval


c. Order per year

=
10 1
10

c. Service level

d. Safety factor
d. Safety stock

= 1.28
= 1.28 489

e. Order point

2
1

= 346

100, 000
10 , 000

= 489 units

= 10

= 90%

= 626 units

100 , 000
2+ 626 = 4,472 units
52

11.16 Sigma
Service

=
=

489 units
20 1 = 95%
20
Safety factor
=
1.65
Safety stock required
=
1.65 489
Change in safety stock
=
807 626
Cost of increased service level
=

11.17 Number of orders per year

=
807 units
=
181 units
181 $10.00 = $1,810

10,000 = 40
250
Number of orders without stockout =
0.9 40 = 36
Number of stocks per year
=
4

11.18
Distribution center A

Transit time: 2 weeks


Order quantity: 100 units

Week

Forecast

50

50

35

50

110

75

40

90

80

100

100

In transit
Projected
available
Planned order
release

100
75

25

129

Distribution center B

Transit time: 1 week


Order quantity: 200 units

Week

Forecast

95

100

115

80

70

55

140

60

190

In transit
Projected
available
Planned order
release

200
50

155

200

200

Central supply

Lead time: 2 weeks


Order quantity: 500 units

Week

Forecast
Scheduled
receipts
Projected
available
Planned order
release

400

400

300

100

200

100

300

300

500

11.19
Distribution center A

Transit time: 2 weeks


Order quantity: 500 units

Week

Forecast

300

200

150

175

200

In transit
Projected
available
Planned order
release

500
200

50

375

175

200

400

500

130

Distribution center B

Transit time: 2 weeks


Order quantity: 200 units

Week

Forecast

50

75

100

125

150

100

25

125

50

In transit
Projected
available
Planned order
release

150

200

200

Central supply

Lead time: 1 week


Order quantity: 600 units

Week

Forecast
Scheduled
receipts
Projected
available
Planned order
release

200

500

200

200

300

100

11.20

a.
b.

11.21

400

600

D
=
200 units per week
L
=
1 week
R
=
2 weeks
SS =
100 units
Target level (T) = D(R + L) + SS
= 200(2 + 1) + 2 x 400 = 1,000 units
Q

=
=

D
=
L
=
R
=
SS =
Target level (T)
Order =

T (on hand)
1,000 600 = 400 units
20 cases per day
3 days
5 days
40 cases
= D(R + L) + SS
= 20(5 + 3) + 40

200 90 = 110 cases

131

200 cases

MULTIPLE CHOICE QUESTIONS


1.

Which of the following are basic systems for determining when to order INDEPENDENT
demand items?
I. Order point system
II. Periodic review system
III. Material Requirements Planning
a. I only
b. II only
c. I and II
d. I and III
e. II and III

2.

Which of the following statements is best?


a. order point = DDLT + SS
b. average inventory = Q 2 + SS
c. safety stock is always needed
d. a and b are true
c. d and c are true

3.

When using the order point system which of the following is true?
a. order quantities are usually fixed
b. the order point depends upon the demand during the lead time plus safety stock
c. time intervals between orders are constant
d. a and b above
e. b and c above

4.

Which of the following statements is true about safety stock?


a. it must always be carried
b. it depends only on the amount of demand
c. it depends on the required service level
d. all the above are true
e. none of the above is true

5.

Select the description which most closely fits the term ORDER POINT:
a. the time it takes to replenish an item in inventory.
b. extra inventory of an item carried to protect against variations in demand during
lead time
c. a listing of components required to manufacture a product
d. the time when an order should be placed
e. none of the above

132

6.

Select the description which most closely fits the term SAFETY STOCK:
a. the time it takes to replenish an item in inventory.
b. extra inventory of an item carried to protect against variations in demand during
lead time
c. a listing of components required to manufacture a product
d. the time when an order should be placed
e. none of the above

7.

Select the description which most closely fits the term LEAD TIME:
a. the time it takes to replenish an item in inventory
b. extra inventory of an item carried to protect against variations in demand during
lead time
c. a listing of components required to manufacture a product
d. the time when an order should be placed
e. none of the above

8.

Among other things the amount of safety stock carried will depend upon:
a. the frequency of reorder
b. the service level desired
c. variability of demand during the lead time
d. all the above
e. a and b above

9.

Which of the following statements is best?


a. safety stock depends on the service level desired
b. safety stock depends on the length of the lead time
c. safety stock depends on the variation of demand during the lead time
d. all of the above are correct
e. none of the above is correct

10. If the standard deviation of demand is 100 units and the average demand is 1000 units, then
we can be 95% confident that actual sales will be 1000 units plus or minus about:
a. 100 units
b. 150 units
c. 200 units
d. 300 units
e. 400 units
11. Which of the following statements is best?
a. most demand patterns tend to be stable and predictable
b. the most common predictable pattern is called a normal distribution
c. the normal curve can be described by its average (mean) and the variation of
actual demand
about the average
d. all the above are true
e. only and b are true

133

12. If the sum of the absolute deviations of demand was 500 for 10 periods, MAD would be:
a. 5
b. 500
c. 50
d. 0.02
e. none of the above
13. Management states that they will tolerate one stockout every year for a specific item. If 10
orders are placed for the item each year the service level desired is:
a. 80%
b. 85%
c. 90%
d. 95%
e. none of the above
14. The average demand for an item is 1000 per month. The mean absolute deviation of
monthly demand is 300 units. The MAD for yearly sales will be approximately:
a. 3600 units
b. 12,000 units
c. 1040 units
d. 3464 units
e. none of the above
15. Given that the lead time is 1 week and the sigma is 100 units, if the lead time changes to 2
weeks then the sigma would change to about:
a. 200 units
b. 180 units
c. 160 units
d. 140 units
e. 120 units
16. Management is willing to tolerate one stockout every 2 years for a specific item. If 10
orders are placed for the item each year the service level desired is:
a. 80%
b. 85%
c. 90%
d. 95%
e. none of the above
17. Which of the following is the best statement?
a. stockouts do not cost money because customers are willing to wait
b. the cost of a stockout will vary depending on the market served, the customer,
and competition
c. stockouts can occur at any time in the inventory cycle
d. stockouts do not depend on the frequency of reorder
e. all the above statements are true

134

18. Which of the following systems are used to determine when the order point is reached?
I. Two-bin system.
II. Perpetual inventory system.
III. Periodic inventory system.
IV. Safety stock system.
a. all are used to tell when the order point is reached
b. I and II are used
c. I, II and III are used
d. I and III are used
e. II and III are used
19. ____________ is an inventory record system that keeps a continuous account of
transactions as they occur:
a. Perpetual inventory system
b. Periodic inventory system
c. Two-bin system
d. Safety stock system
e. All the above keep a continuous account
20. The demand placed on a factory or a central warehouse by distribution centers is
considered:
a. dependent
b. independent
c. uniform
d. all of the above
e. none of the above
21. An order system in which the order quantity is allowed to vary and the order cycle is fixed
is called the:
a. periodic review system
b. two-bin system
c. reorder point system
d. red-tag system
e. none of the above
22. If the lead time is 1 week, the review period 4 weeks, the average demand 100 units per
week and the safety stock is 50 units, the target level will be:
a. 150 units
b. 200 units
c. 250 units
d. 300 units
e. 550 units

135

23. Using the periodic review system the target level is:
a. forecast demand during lead time
b. forecast demand during the review period
c. the sum of a and b
d. the sum of a and b plus the safety stock
e. none of the above
24. If the lead time is 1 week, the review period 1 week, the average demand 100 units per
week and the safety stock is 50 units, the target level will be:
a. 150 units
b. 200 units
c. 250 units
d. 300 units
e. none of the above
25. Which of the following is correct?
a. order quantities are fixed in the periodic review system
b. the two-bin system is an example of the order point system
c. the safety stock does not depend upon the frequency of reorder
d. all of the above are true
e. none of the above is true
26. Which of the following statements is best?
I. In a pull system central supply determines what is needed by the distribution centers
II. In a push system all decisions are made by the distribution centers.
III. An advantage of a pull system is central coordination
a. I and II only are true
b. II and III only are true
c. I and III only are true
d. all the above are true
e. none of the above are true
27. Which of the following are objectives of distribution inventory management?
I. To provide the required level of customer service.
II. To minimize the costs of transportation and handling.
III. To always have enough of everything on hand so there are no stockouts.
IV. To be able to interact with the factory so as to minimize scheduling problems.
a. all the above are objectives
b. I, II and III
c. I, II and IV
d. I, III and IV
e. II, III and IV

136

28. The distribution inventory management system which forecasts when the various demands
will be made by the system on central supply is called:
a. pull system
b. push system
c. distribution requirements planning
d. inventory replenishment
e. order point system
29. If the on hand inventory is 40 units, the safety stock 20 units and the target level is 120
units then an order should be placed for:
a. 100 units
b. 80 units
c. 60 units
d. 40 units
e. 20 units
30. For a given item the lead time is 1 week, the on hand inventory is 50 units, demand is 20
units per week, safety stock is set at 3 weeks supply and the item is ordered every 2 weeks.
The order quantity should be:
a. 70 units
b. 60 units
c. 50 units
d. 40 units
e. 120 units

137

Answers.
1 c
9 d
17 b
25 b

2
10
18
26

d
c
b
e

3
11
19
27

d
d
a
c

4
12
20
28

c
c
a
c

5
13
21
29

e
c
a
b

6
14
22
30

138

b
c
e
a

7 a
15 d
23 d

8 d
16 d
24 c

PHYSICAL INVENTORY AND WAREHOUSE MANAGEMENT


CHAPTER 12
ANSWERS TO PROBLEMS
12.1

5000 30
=
Pallet positions =

167 pallets
167 3 = 55.67

12.2

Number of pallets needed =


Number of pallet positions =

12.3

Number of pallets positions per row


Number of pallets
=

12.4

Pallet positions per row =


Pallets in 4 rows
=

7000 30
234 4

Pallets
5
4
4
10
14
37

=
=

233.33 234 pallets


58.5 59

=
57 3 2

60 12 42
17 3 4

12.5
SKU
A
B
C
D
E
Total

56

=
=

20 12 42 = 57.14
= 342 pallets

17.14 17
204

Positions
Required
2
2
2
4
5
15

a. Pallet positions needed


=
15
b. In 15 pallet positions there is room for 45 pallets
Cube utilization =
37 45 100%
c. If racking is used they would require 37 3
=
12.33
positions
12.6
SKU
A
B
C
D
E
F
G
Total

Pallets
14
17
40
33
55
22
34
215

Positions
Required
4
5
10
9
14
6
9
57

139

13 pallet

a. 57
b. In 57 pallet positions there is room for 228 pallets
Cube utilization
= 215 228
=
94.3%
c. Pallet positions needed =
215 4 = 53.75 54
12.7 a.
Part
number
A

Shelf
Inventory
%
%
Within
Difference
count
record
difference Tolerance tolerance?
650
635
15
2.31
Y
3

1205

1205

0.00

1350

1500

-150

-11.11

77

80

-3

-3.90

38

40

-2

-5.26

3320

3460

Total

A, B, and D, are within tolerance.


b. Accuracy by item = 3 / 5 x 100% = 60%
12.8 a.
Part
number
A

Shelf
Inventory
%
%
Within
Difference
count
record
difference Tolerance tolerance?
75
80
-5
-6.67
N
3

120

120

0.00

1400

1500

-100

-7.14

75

76

-1

-1.33

68

66

2.94

1738

1842

Total

b. Accuracy by item = 2 / 5 x 100% = 40%

140

12.9

1100

Count
frequency
per year
12

1650

6600

27.2

26

2250

4500

18.5

18

Total counts

24300

Workdays per year

250

Counts per day

97.2

Numbers
of counts
per year
45,600

Number of
Classification
items

Numbers
of counts
per year
13200

% of
Total
Counts
54.3

Counts
per Day
53

97

12.10

1900

Count
frequency
per year
24

3000

5100

12,000
5,100

Total counts

62,700

Workdays per year

250

Counts per day

250.8

Number of
Classification
items

% of
Total
Counts
72.7

Counts
per Day
182

19.1

48

8.1

20

250

Due to rounding the total counts for some items may be off. A decision could be made to always
round up the counts per day.

141

MULTIPLE CHOICE QUESTIONS


1.

Which of the following statements are true about warehouse operation?


I. The major operating cost is labor.
II. Labor productivity depends on warehouse layout.
III. Capital costs are those of transport and space.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only.

2.

The operating costs of a warehouse will depend on:


I. The type of material handling equipment used.
II. The stock location system used.
III. The warehouse layout.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only.

3.

Which of the following is NOT a warehouse activity?


a. receiving
b. identifying
c. dispatching
d. order picking
e. transportation.

4.

Which of the following statements is best?


a. the complexity of a warehouse operation will depend on the number of SKUs
handled, the
quantities of each SKU and the number of orders received and filled
b. most of the activity in a warehouse is material handling
c. warehouse management is NOT concerned with space utilization and effective
use of labor
and equipment
d. a and b are true
e. b and c are true.

142

5.

Which of the following statements is best?


a. inventory is stored only on the floor
b. a pallet position is a position where pallets are stored
c. accessibility means being able to get at the goods with a minimum amount of
work
d. there is always a tradeoff between accessibility and cube utilization
e. none of the above statements is true.

6.

If items were stacked against a wall as shown, the cube utilization would be:

a.
b.
c.
d.
e.

100 percent
80 percent
20 percent
cannot be determined from the data given
none of the above.

7.

In a floating location system:


I. Goods are stored wherever there is appropriate space for them.
II. The same SKU may be stored in several locations at the same time.
III. An accurate and up-to-date information system is required.
IV. The system is appropriate for all warehouses.
a. all the above
b. I, II and III
c. I, II and IV
d. II, III and IV
e. none of the above is true.

8.

Which of the following statements is best?


a. among other things, warehousing labor productivity will depend on warehouse
layout
b. all warehouses need to keep accurate records of where each item is located
c. the space required in a warehouse will depend on the amount of labor used
d. all of the above are true
e. none of the above is true.

9.

Which of the following is a principle of merchandise location in the warehouse?


a. group functionally related items together
b. group physically similar items together
c. group fast-moving items together
d. all of the above
e. none of the above.

143

10. Which of the following is NOT a method of order picking?


a. area system
b. floating location system
c. zone system
d. multi-order system
e. all the above are methods of order picking.
11. Which of the following is NOT an advantage of point-of-use storage?
a. materials are readily accessible to users
b. material handling is reduced or eliminated
c. central storage costs are reduced
d. inventory record accuracy is easier to maintain
e. material is accessible at all times.
12. Among other things a good physical control and security of inventory will depend on:
I. A good part-numbering system.
II. A well-trained work force.
III. Free access to stock.
a. I and II
b. I and III
c. II and III
d. I only
e. II only.
13. Which of the following is the best statement?
a. a transaction occurs ONLY when goods are received or issued
b. the steps in a transaction system are: identify the goods, verify quantity, record
the transaction,
and physically execute the transaction
c. inventory is a tangible asset that is easy to lose track of unless properly
controlled
d. a and b are true
e. b and c are true.
14. Which of the following statements are true about inventory accuracy?
I. Inventory accuracy is essential for planning.
II. It is important to find the cause of record error.
III. Periodic audits of inventory will find the cause of record error.
a. all the above
b. I and II
c. I and III
d. II and III
e. none of the above.

144

15. Which of the following are causes of inventory record errors?


I. Unauthorized withdrawals of material.
II. Unsecured stockroom.
III. Audit capability.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only.
16. Which of the following statements is best?
I. It is not always practical to expect 100% inventory accuracy on all items.
II. Variance is the amount of variation between an inventory record and a physical
count.
III. Tolerance is the amount of permissible variation between an inventory record and a
physical count.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only.
17. The three factors in good preparation for a physical inventory are:
I. Housekeeping.
II. Identification.
III. Verification.
IV. Training.
a. I, II and III
b. I, II and IV
c. II, III and IV
d. I, III and IV
18. Which of the following techniques can be used to select items for cycle counting?
a. count all items once a year.
b. count only A and B items
c. base the frequency of count on annual dollar usage
d. count all items the same number of times a year
e. make a random audit of the items.

145

19. Which of the following are true when cycle counting inventory?
I. Inventory should be audited for count and location.
II. Cycle counts can be scheduled at regular intervals or special times.
II. A good time to cycle count an item is when an order is placed.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only.
20. Which of the following are advantages of cycle counting?
I. Timely detection and correction of problems.
II. Reduction of loss of production.
III. Making use of spare labor.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only.
21. Which of the following is NOT a basic stock location system?
a. group functionally related items together
b. locate all stock for fast access
c. group fast-moving items together
d. group physically similar items together
e. locate working stock and reserve stock separately.
22. In a cycle counting system:
a. all items are counted each month
b. item counts are determined by their ABC classification
c. the purpose is to correct inventory imbalances
d. count the A items first, then Bs then Cs
e. counts are done at the end of the business year
23. In a cycle counting system A items are usually:
I. expensive items
II. items which often experience imbalances
III. difficult to get items
a.
b.
c.
d
e.

I only
I and II only
I and III
III only
all of the above

146

24. Cycle counting uses which of the following methods?


a. ABC method
b. zone method
c. location audit method
d. a and b only
e. all of the above
25.

A simple method of determining when an item should be cycle counted is:


a. count when the item is ordered
b. count each time the item is picked
c. count each item once per month
d. count items which have been in storage for a given period of time
e. count items which dont appear to be used often

147

Answers.
1 a
2 a
9 d
10 b
17 b
18 c
25 a

3 e
11 d
19 a

4 d
12 a
20 b

5 c
13 e
21 b

6 b
14 b
22 b

148

7 b
15 b
23 e

8 a
16 c
24 e

PHYSICAL DISTRIBUTION
CHAPTER 13
ANSWERS TO PROBLEMS
13.1

Rail
Transportation cost
$500
In-transit inventory cost 14 days x $35 =
Total cost
$990

13.2

Sea
Transportation cost
$1000
Inventory carrying cost 6300
Total cost
$7300

Truck
$700
$490 4 days x 35 = $140
$840

Air
$7500
300
$7800

It appears cheaper to ship by sea. However, they should take the shorter lead time into
account. It means that they can get a more accurate forecast of what their actual assembly
needs will be and will be able to respond to demand quicker. Inventory at the assembly
plant should be reduced and there should be fewer disruptions to production.
Also machine tools tend to have a number of options and the faster delivery time may
avoid the customer changing their mind.
13.3

Line-haul cost
=
Line-haul cost per cwt. =
Line-haul cost per cwt. =
Saving per cwt.

$13.00 200 =
$2,600 300 =
$2,600 500 =
=

13.4

Line-haul cost
=
Line-haul cost per unit =

$4.00 per mile 1,000


$4,000 500 units

13.5

Line-haul cost per unit =

$4,000 800 units

13.6

Truck would be able to carry 10 2,000 =

20,000 pounds.

Present line-haul cost = $250 / 2,000 =

$0.125/pound

13.7

Proposed line-haul cost

TL Calgary to market
Inventory-carrying cost
LTL cartage
=
Total cost
=

= $15.00 per unit


= $6.00 per unit
$6.00 per unit
$27.00 per unit

Annual saving

$2,600
$8.67 per cwt
$5.20 per cwt
$3.47

$250 / 20,000

($28 $27)(100,000)

149

miles =$4,000
$8.00
$5.00

$0.0125/pound

$100,000

13.8

Plant to customer LTL direct


Plant to customer via warehouse:
Plant to warehouse TL
=
Warehouse costs
=
Warehouse to customer =
Total cost
=
Savings per cwt.
Annual saving =

13.9

=
$9 100,000

$40/cwt.

$20/cwt.
$5/cwt.
$6/cwt.
$31/cwt.
$9/cwt.
= $900,000

Let x be the distance from central supply to the market boundary.


LDCCS = 20 + 1x
LDCDC = (20 + 50 + 4) +1(500 x)

Costs of LDCCS and LDCDC are equal at the boundary


20 + 1x = 74 + 500 1x
2x = 554
x = 277
LDC = $20 + $1 277 = $297
13.10 From warehouse:
Plant to warehouse TOTAL cost
Warehouse to customer LTL =
Inventory carrying cost
=
Total cost
=
Direct from plant cost
=

= $20.00/cwt. (TL + Inventory)


$4.00/cwt.
$5.00/cwt.
$29.00/cwt.
$35.000/cwt.

Its cheaper to supply this market from the warehouse rather than from central supply because
the cost per cwt. is $6 less.
13.11 a.
b.

c.

Cost per cwt. shipping direct:


LTL direct
= $0.70 + $.30 115 =
$35.20
Cost of shipping via the warehouse:
TL to warehouse = $0.4 + $0.15 135 = $20.65
Warehouse costs =
=
0.30
$30.65
LTL city B to city A = $0.70 + $0.30 30 = 9.70
The fixed cost concerns loading, handling and paperwork which is independent of
distance traveled. See also Figure 13.3 and section in text on total transportation
costs.

150

MULTIPLE CHOICE QUESTIONS


1.

Which of the following statements is best regarding distribution channels?


a. There are only two members in any distribution channel.
b. The transaction channel is concerned with transfer of ownership.
c. The distribution channel is concerned with the transfer of goods
d. all the above are true
e. b and c only are true.

2.

The particular way materials move will depend upon:


a. the channels of distribution the firm is using
b. types of markets served
c. characteristics of the product
d. all of the above
e. none of the above.

3.

Which of the following activities is NOT considered a function of physical distribution?


a. transportation
b. production control
c. distribution inventory maintenance
d. warehousing
e. order processing.

4.

The two criteria for establishing a particular physical distribution system are:
a. cost of the system and service level desired
b. service level and cost of carrying inventory
c. cost of transportation and cost of warehousing
d. cost of transportation and materials handling
e. cost of warehousing and cost of inventory.

5.

Which of the following statements is best?


a. the objective of distribution management is to provide the required level of
service at least
cost
b. there will be cost trade-off between the various activities in physical distribution
c. distribution can operate separately from marketing and production
d. a and b are true
e. b and c are true.

6.

Which of the following statements is best?


a. physical distribution provides a bridge between marketing and production
b. physical distribution contributes towards creating demand
c. replenishment orders to replace field warehouse stocks will not affect
production
d. a and b are true
e. b and c are true.

151

7.

Which of the following are elements in the cost of carriage?


I. Ways
II. Vehicles
III. Terminals
a. I, II and III
b. none of the above
c. I and II
d. I and III
e. II and III.

8.

Which of the following statements is true?


a. railways are best at moving small volumes of bulky goods over short distances
b. road transport is the least flexible of all the modes
c. air cargo should be used for fast service over short distances
d. all of the above are true
e. none of the above is true.

9.

A shipper moving expensive goods of small size from Boston to Seattle would likely use:
a. air
b. motor
c. rail
d. water
e. none of the above.

10. Considering the service desired and the relative cost of the item, which of the following
would you most likely ship by truck?
a. regular shipments of cut flowers
b. regular shipments of iron ore
c. regular shipments of grain
d. a and b above
e. b and c above.
11. Which of the following is true?
a. because of high capital cost, rail must have a large volume of traffic to justify
the expense
b. water transport requires low rates of energy per ton mile moved
c. operating costs per ton mile tend to be low for trucks
d. a and b above
e. b and c above.

152

12. Of the five modes of transportation, which one requires the lowest capital investment?
a. air
b. motor
c. rail
d. water
e. pipeline.
13. Which mode would provide the fastest service capability?
a. air
b. motor
c. rail
d. water.
14. Which of the following statements is FALSE?
a. pipeline capital costs are high in comparison with other modes
b. air cargo is generally used for low value bulky items
c. truck transport is suitable for distribution of small volume goods to a dispersed
market
d. water transport is slower than rail
e. rail transport is more suited to bulky low value items than road transport.
15. Which of the following is true?
a. the service capability of mode depends only on transit time
b. air transport is the most expensive mode
c. reliability of service and area covered are not important in selecting a mode
d. all of the above
e. b and c above.
16. Which mode would provide the slowest service capability?
a. air
b. motor
c. rail
d. water.
17. A contract carrier provides:
a. a service available to the general public
b. a scheduled service
c. published rates
d. all of the above
e. none of the above.

153

18. In which case(s) would you use common carriers instead of contract carriers?
a. regular delivery by a food chain to its stores
b. shipment to customers by a mail order house
c. regular shipment of paper from a mill to its warehouse
d. a and b above
e. a and c above.
19. Which of the following types of transportation will provide the best service capability?
a. common
b. contract
c. private
d. all of the above are equal
e. none of the above.
20. In which case(s) would you use contract carriers instead of common carriers?
a. regular delivery by a food chain to its stores
b. shipment to customers by a mail order house
c. regular shipment of paper from a mill to its warehouse
d. a and b above
e. a and c above.
21. Which mode of transportation would cost the MOST per ton mile?
a. air
b. motor (truck)
c. rail
d. water.
22. Which mode of transportation would cost the LEAST per ton mile?
a. air
b. motor (truck)
c. rail
d. water.
23. Which of the following are elements in transportation cost?
a. line haul
b. pickup and delivery
c. terminal handling
d. all of the above
e. none of the above.

154

24. Which of the following is correct?


a. consolidating shipments reduces billing and collecting costs
b. line-haul cost per hundredweight can be reduced by increasing the weight
shipped
c. shipping costs will be higher with common carriers than contract carriers
d. all of the above
e. none of the above.
25. A shipper wishing to reduce transportation costs will:
a. ship only in small quantities
b. ship to LTL lots
c. use trucks for all his shipments
d. all of the above
e. none of the above.
26. Consolidating shipments will reduce which of the following costs?
a. pickup and delivery
b. terminal handling
c. billing and collecting
d. all of the above
e. none of the above.
27. TOTAL line-haul costs will vary directly with:
a. the distance moved
b. the weight moved
c. the density of the goods
d. a and b above
e. b and c above.
28. The rate charged by a carrier will vary with:
I. The value of the goods.
II. The density of the goods.
III. The color of the goods.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only.

155

29. To decrease shipping costs a shipper will:


I. Increase the weight shipped.
II. Consolidate shipments.
III. Use a common carrier rather than contract carrier.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only.
30. Which of the following statements is true?
a. goods are stored in a distribution warehouse for long periods of time
b. a depository for documents is an example of a security warehouse
c. warehouses improve customer service
d. a and b
e. b and c.
31. Which of the following is NOT an important role of distribution centers?
a. transportation consolidation
b. in-transit inventory
c. product mixing
d. break-bulk storage
e. customer service.
32. The market boundary is:
a. a location beyond which a source cannot supply
b. the line between two or more supply sources where the laid-down cost is the
same
c. an agreed-upon boundary beyond which competition will not sell
d. the extent of a market area
e. a legal limitation placed on the delivery of goods.
33. Which of the following is a basic role of packaging in distribution?
I. Identify the product.
II. Contain and protect the product.
III. Contribute to physical distribution efficiency.
IV. Be an important part of the marketing program.
a. all the above
b. I, II and III only
c. I, II and IV only
d. II, III and IV only
e. none of the above.

156

34. The consolidation of several units into larger units for fewer handlings is called:
a. unitization
b. consolidation
c. cube utilization
d. packaging
e. materials handling.
35. Which of the following statements is best regarding materials handling in distribution
systems?
I. One objective of materials handling is to increase cube utilization.
II. Materials handling can increase the service level.
III. Gasoline powered industrial trucks are used indoors.
a. all the above are true
b. I and II are true
c. I and III are true
d. II and III are true
e. I only is true.
36. Which of the following statements is best?
a. materials handling costs are relatively constant as warehouses are added but
after a point will
start to rise
b. inventory costs remain constant as the number of warehouses increase
c. packaging costs increase as the number of warehouses increase
d. a and b are true
e. a and c are true.
37. As more warehouses are added to a physical distribution system we can expect the cost of:
a. TL and CL shipments to increase
b. LCL and LTL shipments to decrease
c. total transportation costs to decrease
d. all of the above
e. a and b above.
38. Which of the following is best?
a. as more warehouses are added to a system, TL and CL shipment costs increase
b. pickup and delivery costs are reduced by consolidation
c. water transportation requires less energy per ton mile moved than any other
mode
d. all of the above are best
e. none of the above is best.

157

39. Which of the following statements is true regarding goods in a reverse logistics system?
a. Volumes are equal to the forward logistics system.
b. They travel through the same terminals as the forward logistics system.
c. The goods tend to be small in quantity.
d. Little product information is required.
e. All of the above are true.
40. Reverse logistics:
a. calculates total delivery cost from customer to producer
b. is the return of goods
c. is easily automated
d. is always done by a companys carrier selection
e. is best applied to small diverse markets

158

Chapter 13 Answers to multiple choice questions.


1
10
19
28
37

e
a
c
b
d

2
11
20
29
38

d
d
e
b
d

3
12
21
30
39

b
b
a
e
c

4
13
22
31
40

a
a
d
b
b

5
14
23
32

d
b
d
b

6
15
24
33

159

d
b
d
b

7
16
25
34

a
d
e
a

8
17
26
35

e
e
d
b

9
18
27
36

a
b
a
a

PRODUCTS AND PROCESSES


CHAPTER 14
ANSWERS TO PROBLEMS
14.1

Suggestion. Ask the class. They may have some pet peeves about products and you will
get a good discussion.

14.2
Fixed cost

Variable cost

Volume (units)

Total cost

Unit cost

$200.00

$10.00

100

$1,200.00

$12.00

$200.00

$7.00

1000

$7,200.00

$7.20

$50.00

$15.00

20

$350.00

$17.50

$1,000.00

$1.00

2000

$3,000.00

$1.50

$500.00

$20.00

500

$10,500.00

$21.00

14.3

a.

Fixed cost

b.

Variable cost =

5 60 $30.00

c.

Total cost
Units cost

=
=

$200.00 + $2.50 500


$1450 500
=

d.

Total cost
Unit cost

=
=

$200.00 + $2.50 1000 = $2700.00


$2700 1000
= $2.70

14.4
Fixed cost
Variable cost
a.

$200.00

Heat treat in-house


$28,000.00
$10.00

CEP where: FCA + VCAx


$28,000 + $10x =
$7x =
x =

$2.50
= $1450.00
$2.90

Purchase services
$0.00
$17.00

=
0 + $17.00x
$28,000
4000

CEP is at 4000 units.


b.

3,000 units is less than the CEP. Therefore purchase the services.
5,000 units is above the CEP. Therefore heat treat in-house.

c.

Unit cost for 3000 units


Unit cost for 5,000 units

=0 + $17.00
= $17.00
= (25,000 + 5,000 $10.00) 5000 = $15.60

160

14.5

Corner store: Fixed cost


= $0.00, variable cost
= $0.99 per pound
Cross Towne Fixed cost
= $2.80, variable cost
= $0.69 per pound
CEP:
$0.00 + $0.99x
= $2.80 + $0.69x
$0.30x = $2.80
x = $9.3 pounds
It is worth the trip if you buy 9.3 pounds of bananas. However, if Cross Towne has other
bargains it might be worthwhile for fewer bananas.
14.6
Buy

Process A Process B

Setup

$40.00

$180.00

Tooling

$10.00

$20.00

Labor/unit

$4.00

$3.75

Material/unit
Purchase
$6.10
cost
Total cost
$2,440.00

$2.00

$2.00

$2,450.00

$2,500.00

$6.13

$6.25

Unit cost

$6.10

Use process A. Unit cost = $6.10


14.7

a.

CEP buying/semi.

$0 + $2.00x
$0.70x
x

b.

CEP semi/auto

$5,000 + $1.30x = $15,000 + $0.60x


$0.70x
= $10,000
x
= 14,285.7 units

c.

i.
ii.
iii.
iv.
v.

5,000 units: Buy


6,000 units: Buy
8,000 units: Semiautomatic
10,000 units: Semiautomatic
20,000 units: Automatic

d.

i.
ii.
iii.
iv.
v.

Unit cost
Unit cost
Unit cost
Unit cost
Unit cost

=
=
=
=
=

= $5,000 + $1.30x
= $5,000
= 7,142.8 units

$2.00
$2.00
($5,000 + $1.30 8,000) 8,000 = $1.925
($5,000 + $1.30 10,000) 10,000 = $1.80
($15,000 + $0.60 20,000) 10,000 = $1.35

161

14.8

Wrong selection

62,000.00

42.8

Cumulative
percent
42.8

Wrong size

50,000.00

34.5

77.2

Order canceled

15,000.00

10.3

87.6

Wrong address

3,000.00

2.1

89.7

15,000.00

10.3

100.00

145,000.00

100.00

Reason

Number

Other
Total

Percent

14.9

Number
$
$10,250

$5,720

30.7

85.8

$1,130

6.1

91.8

$820

4.4

96.2

$700

3.8

100.00

$18,620

100.0

Part

Total

Cumulative
percent
55.0
55.0

Percent

162

MULTIPLE CHOICE QUESTIONS


1.

The process of making something less complex or less difficult is called:


a: standardization
b: simplification
c: specialization
d: any of the above
e: none of the above

2.

Which of the following statements regarding standardization is true?


I. All products made to a given specification will be interchangeable.
II. A range of standard specifications can be established so that the range covers the
majority of uses for the item.
III. Standardization results in a larger variety of parts.
a: I and II are true
b: II and III are true
c: I and III are true
d: I, II and III are true
e: none of the above is true

3.

The establishment of a common size for electric light sockets is an example of:
a: simplification
b: diversification
c: standardization
d: product focus
e: none of the above

4.

The concentration of effort in a given field of endeavor is called:


a: simplification
b: concentration
c: standardization
d: all the above
e: none of the above

5.

Specialization increases output and decreases costs by:


a: enabling labor to develop speed and dexterity
b: reducing setup time for each part
c: allowing a company to make a wide variety of different products
d: a and b above only
e: none of the above

163

6.

Which of the following is an advantage of product specialization?


a: it allows a large variety of finished goods to be made
b: it lets the firm pay only for the skills required
c: it allows labor to develop speed and dexterity
d: all the above
e: b and c above

7.

Standardization can reduce costs by:


a: reducing inventories
b: increasing lot sizes
c: allowing the use of general purpose equipment
d: all the above
e: a and b only

8.

Which of the following statements is true?


I. Serving similar customers with similar demand characteristics is an example of
market focus.
II. A company specializing in assembling cars is an example of process focus.
III. A focused factory specializes in a wide product mix.
a: I only is true
b: I and II only are true
c: I and III only are true
d: II and III only are true
e: all the above are true.

9.

Which of the following is an objective of product design?


a: to design a product that will function as expected in the marketplace
b: to design a product for minimum processing cost
c: to design a product that will have minimum design costs
d: all the above
e: a and b above

10. Tolerance is:


a: an allowable deviation from the desired result
b: specified by process designers
c: another word for variation
d: none of the above
e: a and b above

164

11. Which of the following are advantages of simultaneous engineering?


I. Time to market is reduced.
II. Avoids the need for marketing and design to work together.
III. Less communication is necessary.
a: I only is true
b: I and II only are true
c: I and III only are true
d: II and III only are true
e: all the above are true
12. Which of the following statements is/are true?
a: product design is a major factor in determining the cost of a product
b: product design is a major factor in the quality of a product
c: product design is a trial and error process
d: a and b above only
e: all the above are true
13. General-purpose equipment:
a: is designed for maximum flexibility
b: is used extensively in intermittent manufacturing
c: is designed and used to produce one or a few specific parts
d: a and b only are true
e: none of the above are true
14. Which of the following is a characteristic of special-purpose machinery?
a: it can perform a variety of operations on a variety of work pieces
b: capital costs are low compared to general purpose machinery
c: it generally produces better quality than general purpose machinery
d: all the above
e: none of the above
15. In designing a process, which of the following needs to be considered?
a: the volume to be produced
b: the degree of customer involvement
c: the desired quality level
d: all the above
e: none of the above

165

16. Which of the following statements is best about flow manufacturing?


I. Work stations are located in the sequence needed to make the product.
II. Work flows at a relatively constant rate.
III. They can produce a wide variety of different products.
IV. There is little buildup of inventory.
a. all the above
b. I, II and III are true
c. I, II and IV are true
d. II, III and IV are true
e. I, III and IV are true
17. Which of the following statements is best regarding intermittent manufacturing?
I. Goods are produced in lots or batches.
II. General purpose machinery is mostly used.
III. Each work station must be flexible.
a. none of the above are true
b. I, II and III are true
c. I, II and IV are true
d. II, III and IV are true
e. I, III and IV are true
18. In a particular process, the fixed costs are calculated at $40,000 and the variable costs at
$1.50 per unit. If 10,000 units are to be produced, what is the average cost per unit?
a: $1.50
b: $2.00
c: $4.00
d: $5.50
e: none of the above
19. Which of the following are reasons a firm would buy a product rather than make it in its
factory?
a: secrecy of design
b: utilizing idle workforce
c: providing known and competitive prices
d: all the above
e: a and b only
20. Which of the following is/are characteristic(s) of line-flow manufacturing?
a: requires less work-in-process inventory than intermittent manufacturing
b: is suitable for high-volume items
c: makes extensive use of special-purpose machinery
d: all the above
e: none of the above

166

21. What is the Cost Equalization Point for the two processes shown?
Process A
Process B
Fixed cost $30.00
$120.00
Variable cost $3.00
$2.00
a:
b:
c:
d:
e:

$90.00
90 units
100 units
120 units
none of the above

22. Intermittent manufacturing:


a: is particularly suited to the production of low-volume items
b: processes items in lots or batch
c: generally uses general purpose machinery
d: all the above
e: none of the above
23. The cost equalization point:
a: is used to show the potential profit of a process
b: shows the lot size where costs are minimized
c: is used to select the lowest cost of two or more alternative processes
d: is the point where unit cost of a process are at a minimum
e: uses all the above
24. Some purposes of continuous process improvement are:
a: the reduction of worker fatigue and effort without reduction of levels of output
b: the improvement of production processes and procedure
c: the improvement of factory, department, and work-station layout to improve
work flows
d: improvement of levels of worker safety
e: all the above
25. In selecting a project for method study, which of the following factors should be
considered?
a: human
b: economic
c: marketing
d: all the above
e. a and b only

167

26. Which of the following steps in method study ensures all elements of a job are studied?
a: install
b: select
c: record
d: examine
e: none of the above
27. A disadvantage of intermittent manufacturing is:
a. High inventories are required
b. High flexibility is required
c. No flexibility exists
d. Work place utilization is minimized

168

Answers.
1 b
2 a
10 a
11 a
19 c
20 d

3 c
12 d
21 b

4 e
13 d
22 d

5 a
14 c
23 c

6 e
15 d
24 e

169

7 e
16 c
25 e

8 a
17 b
26 c

9 e
18 d
27 a

JUST-IN-TIME MANUFACTURING
CHAPTER 15
ANSWERS TO PROBLEMS
15.1

a.

New EOQ

$20,000 10/5

b.

Total average inventory before =

c.

Total average inventory after =

$28,284

10 x $20,000 =
2
5 $28,284
2

$100,000

$70,710

15.2

Reduction in average inventory =


$100,000 $70,710
=
$29,290
Reduction in carrying cost =
0.2 x $29,290
= $5,858

15.3

a.

EOQ =

2 x1000x10
= 100 units
20

b.

EOQ =

Annual demand
=1000 units
Carrying Cost
= $20 per unit/year
Setup Cost
= $100/setup
Run Cost
= $2.00/unit
After setup reduction, the setup cost = $10/setup

$15

2 x1000x10
= 32 units
20

c.

Total cost

Before: Setup
$1,000.00
After: $312.50

Setup cost + carrying cost + run cost

Carrying
Run
Total Cost Unit Cost
$1,000.00 $2,000.00 $4,000.00 $4.00
$320.00
$2,000
$2,632.50 $2.63

(1,000/32)x$10 (32/2)x$20 (1,000x$2)

32

170

($4,000.00/1,000)
($2,632.50/1,000)

15.4

A: 500/100 =
B: 400/100 =
C: 300/100 =

5
4
3
12

Since there is no common denominator for 5, 4 and 3, the minimum sequence will be 12
as follows:
ABC, ABC, ABC, ABA.
15.5
Week

Model A

800

800

800

800

800

Model B

600

600

600

600

600

Model C

200

200

200

200

200

1600

1600

1600

1600

1600

Total

171

MULTIPLE CHOICE QUESTIONS


1.

Which of the following statements is best regarding JIT?


I. It is a philosophy that relates to the way in which a manufacturing company
organizes and operates its business.
II. It is a set of techniques to make manufacturing more productive.
III. It is concerned with adding value to the product.
a. all the above are true
b. I and II are best
c. I and III are best
d. II and III are best
e. I only is best

2.

Which of the following statements is true?


I. Value starts in the marketplace.
II. Cost and value are the same thing.
III. Counting and storing add value to the product.
a. I and II
b. I and III
c. II and III
d. I
e. III

3.

If a company standardizes on the components that are used in different models it will:
a. reduce waste
b. reduce the variety of options offered to the customer
c. reduce the length of production runs
d. require the use of general-purpose machinery

4.

The ideal product is one that:


I. Meets or exceeds the needs of the customer.
II. Makes the best use of material.
III. Can be manufactured at least cost.
a. all the above
b. I and II only
c. II and III only
d. I only

5.

Overproduction causes waste by:


a. consuming unneeded raw materials and labor
b. creating excess inventory
c. causing confusion and hiding problems
d. a and b
e. all the above

172

6.

Which of the following are advantages of reducing inventory?


I. Engineering changes can be made sooner.
II. Quality can be improved.
III. Less space is needed in manufacturing.
IV. Lead time will be shorter.
a. all the above
b. only I, II and III
c. only I, II and IV
d. only II, III and IV
e. only III and IV

7.

Which of the following is NOT an advantage of work cells?


a. queue and lead time are reduced
b. production activity control is simplified
c. need for floor space is reduced
d. immediate feedback
e. maximum machine utilization

8.

Which of the following contribute to machine flexibility?


a. small general-purpose machinery
b. mobility of machines
c. automated high-capacity machines
d. a and b above
e. b and c above

9.

Reduced setup has which of the following advantages?


I. Reduced lot sizes.
II. Reduce lead time and queue.
III. Improved quality.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. I only

10. Which of the following statements is best about quality?


I. Quality can be inspected into a product.
II. Poor quality has no effect on work flow.
III. The process must be capable of producing the required quality consistently.
IV. Machinery must be maintained in excellent condition.
a. all the above
b. I and II only
c. II and III only
d. III and IV only
e. I and IV only

173

11. Which of the following concepts is needed to achieve uninterrupted material flow?
a. uniform plant loading
b. pull system
c. valid schedules
d. all the above are needed
e. a and b only are needed
12. Linearity in a JIT environment means:
a. produce small lot sizes
b. plan level schedules
c. each day achieve the plan, no more or less
d. eliminate all idle time
e. statistical process control
13. The buyer expects that a supplier will provide each of the following EXCEPT:
a. the quality needed at all times
b. information on competitors
c. frequent deliveries
d. improved quality and cost
14. Employee involvement in a JIT environment means:
I. Operators must take responsibility for improving the process.
II. Management must take more of a leadership role.
III. Staff must be trainers and assist line people.
a. all the above
b. I and II only
c. I and III only
d. II and III only
e. none of the above
15. Which of the following statements is best?
I. JIT and manufacturing planning and control cannot work together.
II. The JIT philosophy simplifies and reduces manufacturing planning and control
problems.
III. JIT requires a very good planning and control system.
a. all the above are true
b. I and II
c. I and III
d. II and III
e. none of the above

174

16. JIT will influence master production scheduling by:


a. reducing time fences and making the MPS more responsive to customer demand
b. making it possible to use daily time buckets
c. making the MPS more unstable
d. a and b only
e. b and c only
17. JIT practices will change the material requirements planning process by:
a. reducing the number of levels in the bill of material
b. making the bill of material more complex
c. increasing the need for offsetting
d. increasing the need for netting
e. eliminating the need for MRP
18. Which of the following is a benefit to the purchaser in supplier partnerships?
a. frequent deliveries on a just-in-time basis
b. better quality
c. improved performance and cost
d. all the above
e. a and b above only
19. A pull system is developed to provide which of the following?
a. an alternative to a classic MRP system
b. to provide only what is needed and when it is needed
c. can only be used when demand is constant and known
d. can only be used when demand is unknown
e. none of the above
20. The primary purpose for establishing small-group improvement activities among
production employees is:
a. direct labor efficiency improvement
b. improved scheduling
c. morale improvement
d. product improvement
e. work methods improvement
21. Bills of material used for MRP planning in a JIT environment are likely to have which of
the following characteristics?
a. fewer "phantom" or "blow-through" assemblies
b. increased complexity with regard to options
c. weekly time buckets
d. no need for where-used references
e. fewer levels in product structures

175

22. Each of the following contributes to machine flexibility EXCEPT:


a. ease of maintenance
b. mobility
c. variable speed
d. multipurpose
e. quick setup
23. The principle of cellular manufacturing is also known as:
a. work cell layout
b. clustered flow
c. functional organization
d. pull systems
e. continuous flow

176

Answers.
1 a
2 d
10 d
11 d
19 b
20 c

3 a
12 c
21 e

4 a
13 b
22 a

5 e
14 a
23 e

6 a
15 d

177

7 e
16 d

8 d
17 a

9 a
18 d

TOTAL QUALITY MANAGEMENT


CHAPTER 16
ANSWERS TO PROBLEMS
16.1

Number of standard deviations within tolerance


= .001 .00033
= 3.03
Sigma is approximately 3. Therefore approximately 99.7% of shafts will be within
tolerance.
16.2

Number of standard deviations within tolerance


= .0007 .00033 = 2.12
Sigma is approximately 2. Therefore approximately 95.5% of shafts will be within
tolerance.

16.3

CP

USL LSL
=
5.05 4.95
=
1.11
6
6(0.015)
The CP is greater than one; therefore the process is capable.

16.4

CP

(USL LSL) =
6 x .02

0.83

(.05 ( - .05)) =
6 x .02

0.83

The CP is less than one and the process is not capable


16.5

CP

16.6

CP

USL LSL
=
.765 .735
=
6
6(.007)
The CP is less than one and the process is not capable

0.71

1.43

USL LSL
=
.765 .735
=
6
6(.0035)
The CP is greater than one and the process is capable

178

16.7

a.

Process centered on 0.75


Cpk = (USL Mean)
3

or

(Mean LSL)
3

.765 .75
3 .0035

or

.75 .735
3 .0035

1.43

or

1.43

Since Cpk is greater than 1.33, the process is capable.


b.

Process centered on 0.74


Cpk = .765 .74 = 2.38
3 .0035

or

.74 .735 =
3 .0035

.48

Since the lower Cpk is less than 1, the process is not capable.
Note that as a quick test the Cp is equal to the average of the upper Cpk and the lower Cpk
16.8

a.

Cpk =

8.1 7.93 = 2.38


3 .02

or

= 7.93 7.9 =
3 .02

.5

Since the lower Cpk is less than 1, the process is not capable.
a.

Cpk =

8.1 7.98 = 2 or =
3 .02

7.98 7.9
3 .02

1.33

Since the lower Cpk is greater than 1.3, the process is capable.
b.

Cpk =

8.1 8.04 = 1 or =
3 .02

8.04 7.9
3 .02

2.33

Since the lower Cpk is between 1 and 1.3, the process is marginally capable..

16.9
For this question students will have unique answers. You can refer to Figure 16.16.
Their answers should show where improvements are needed and the interaction of features
occur.

179

MULTIPLE CHOICE QUESTIONS


1.

Which of the following statements is best?


a. the basic quality level of a product is specified by senior management
b. manufacturing is responsible for meeting at least the minimum specifications of
the product
c. the product designer builds the quality level into the product by design and
specification
d. all the above are true
e. a and b are true

2.

Which of the following is NOT a basic concept of total quality management?


a. customer focus
b. competitive supplier bidding
c. continuous process improvement
d. performance measures
e. involvement of the total workforce

3.

Which of the following statements regarding TQM is best?


I. TQM is organization wide and everyone's responsibility
II. Customer focus is not a requirement of TQM.
III. Only junior management is involved in TQM.
a. I only is true
b. II only is true
c. III only is true
d. I and II only are true
e. all the above are true

4.

Giving people the authority to make decisions and take action in their work areas is called
which of the following?
a. teamwork
b. organizational skills
c. empowerment
d. any of the above
e. none of the above

5.

Which of the following statements is best regarding performance measures?


I. They are not necessary for performance improvement.
II. They should be appropriate and useful.
III. They should be simple and easy for users to understand.
a. I and II only
b. I and III only
c. II and III only
d. all the above

180

6.

The cost of failure to control quality includes which of the following?


a. scrap, rework and spoilage
b. warranty charges
c. returned materials
d. all the above
e. none of the above

7.

The costs of controlling quality include which of the following?


a. prevention and appraisal costs
b. prevention and process control costs
c. appraisal and process control costs
d. any of the above
e. none of the above

8.

Which of the following is/are included in the cost of preventing poor quality?
a. operator training
b. final inspection
c. warranty charges
d. all the above are included in the costs of preventing poor quality
e. none of the above is included in the costs of preventing poor quality

9.

Which of the following statements is best regarding process variation?


I. All variation is due to chance.
II. Chance variation is inherent in the process.
III. Assignable variation is due to a specific cause.
a. I and II are true
b. I and III are true
c. II and III are true
d. I only is true
e. II only is true

10. Chance variation in a process can be caused by which of the following?


a. people
b. machinery
c. materials
d. all the above
e. none of the above
11. Which of the following can be used to describe the spread of the pattern of variability?
a. arithmetic mean
b. average
c. range
d. upper control limit
e. none of the above

181

12. Which of the following statements is true if the standard deviation of a process is .02 and
the average is 1?
a. about 68.3% of the output will be within 1 .02
b. the specification limits are .02
c. the upper control limit is 1.02
d. all the above are true
e. none of the above is true
13. The permissible limits of deviation from perfection is called which of the following?
a. spread
b. tolerance
c. control limits
d. process capability
14. Which of the following statements is best?
I. The capability of a process is related to the product specification limits.
II. Quality does not depend on the process used.
III. Defects can only be produced by a shift in the mean.
a. I only is true
b. I and III only are true
c. I and III only are true
d. all the above are true
e. none of the above is true
15. Which of the following statements is best if a process has a capability index (Cp) of 0.83?
a. the process is capable
b. the process is not capable
c. cannot tell whether the process is capable or not from the information
d. the product specifications are adequate
16. Which of the following statements is best if a process has a Cpk of between 1 and 1.33?
a. the process is not capable
b. the process is marginal
c. the process is capable
d. none of the above is true
17. The purpose of process control is to:
a. make sure the process does not stop
b. self-correct the process
c. to show when there is a high probability of an assignable cause for defect
d. to help designers develop the steps to automate a process
e. all the above

182

18. Which of the following statements is correct regarding control charts?


I. Specification limits are the same as control limits
II. If there is no assignable cause of variation the process is in control
III. A shift in the mean or average will show up on the X portion of the X and R chart
a. I and II are true
b. I and III are true
c. II and III are true
d. all the above are true
e. none of the above is true
19. Which of the following statements is true regarding sample inspection?
a. acceptance sampling requires 100% inspection
b. one reason to sample inspect is because of human error
c. the sample should be taken from the last parts produced because there is less
chance of error
d. there is no risk to either the consumer or producer
20. Which of the following statements is correct regarding acceptance sampling?
a. sample inspection is 100% accurate
b. the consumer's risk is that a lot with less than the acceptable number of defects
will be accepted
c. The producer's risk is that a batch with more than the acceptable number of
defects will be rejected
d. The cost of the sampling plan must be balanced against the consumer's risk and
the producer's risk
e. Lots are accepted when the consumers risk equals the producers risk
21. Under which of the following conditions is acceptance sampling appropriate?
a. testing of the product is destructive
b. time is available for 100% inspection
c. the sample can be taken from the top of the batch
d. the batch to be sampled is small
e. sampling is a natural part of the process
22. Which of the following statements is true concerning ISO 9000 standards?
I. They are intended to prevent nonconformities during all stages of inspection
II. There is only one ISO 9000 standard and it only applies to manufacturing.
III. ISO 9000 requires third party registration
a. I only is true
b. II only is true
c. III only is true
d. I and II are true
e. All of the above are true

183

23. ISO 9000:2000 is designed as:


a. a complete set of documentation to run any business
b. a process approach to management
c. a 12 step process
d. a method of sampling to prevent defects in any process
e. a set of technical standards to establish inspection limits
24. Which of the following statements is true concerning benchmarking?
a. it seeks improvement by analyzing the internal process
b. it studies only organizations in the same industry
c. it studies the "best in class" organizations
d. it is a process for determining performance measures for the shop floor
25. A House of Quality is used to:
a. Organize a company into departments focusing on quality.
b. Structure the engineering team.
c. Translate customer needs into design specifications.
d. Calculate specifications for desired cost reductions.
e. Calculate capability of a process to meet customer specifications.
26. The voice of the customer is:
a. The response heard from market promotions
b. An expression for customer wants.
c. The communication method used for network marketing.
d. A measure of capability of a process.
27. QFD is an acronym for:
a. Quality Function Deployment.
b. Quality For Design.
c. Quality Forms Development
d. Quality through Frequent Delivery
e. Queen For a Day
28. Six Sigma is a strategy designed to:
a. Reduce defects.
b. Measure the capability of the quality function.
c. Calculate productivity.
d. Increase the total output of processes.
e. None of the above.
29. Six Sigma:
a. Is only applicable if a process is repetitive.
b. Is an offshoot of the 5-S program.
c. Is an award sponsored by the Malcolm Baldridge Foundation.
d. Is about more than measurement of parts production.
e. a and b above only

184

30. The Top Six Sigma project managers are known as:
a. Black Belts
b. White Hats
c. Best-In-Class
d. World Class
e. Biero

185

Answers.
1 e
10 d
19 b
28 a

2
11
20
29

b
c
d
d

3
12
21
30

a
a
a
a

4 c
13 b
22 c

5 c
14 a
23 b

6 d
15 b
24 c

186

7 a
16 b
25 c

8 a
17 c
26 b

9 c
18 c
27 a