Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) The ________ curve is flat at the bottom. 1)

A) holding cost B) total cost C) ordering cost D) carrying cost

2) There is an order quantity in which the sum of the ________ is a minimum. 2)

A) carrying costs and unit cost
B) carrying cost and the annual usage in units
C) ordering costs and carrying costs
D) ordering costs and the annual usage in units

3) ________ depend on the quantity ordered. 3)

A) The cost of ordering inventory B) The cost of carrying inventory
C) Both A and B D) Neither A nor B

4) For a situation in which the annual demand (A), the cost of ordering (S), and the cost of carrying 4)
inventory (i) are given, the total cost will depend upon ________.
A) c B) S C) Q D) A

5) The EOQ will ________ as the annual demand (A) and the cost of ordering (S) increase. 5)
A) decrease B) stay the same C) increase D) all of the above

6) If the order point is 100 units, the maximum is 300 units, and the quantity actually available when 6)
the order is placed is 75, what is the order quantity?
A) 220 B) 80 C) 200 D) 225

7) The buyer must decide whether to accept a quantity discount and must consider ________ costs. 7)
A) purchase and ordering B) ordering and carrying
C) purchase D) purchase, order, and carrying

8) The cost of placing a manufacturing order is made up from ________. 8)

A) production control costs B) setup costs
C) production control and setup costs D) neither production control nor setup costs

9) Since the total cost is relatively ________ around the EOQ, it is ________ to have exact values. 9)
A) flat, critical B) flat, not critical
C) sloped, critical D) sloped, not critical

10) Demand is not uniform and stock must be built ahead. It is better to plan a buildup of ________ 10)
inventory based on capacity and future demand.
A) anticipation B) multiples of C) transportation D) WIP

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

11) Discuss the assumptions of the EOQ model. 11)

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 12) Discuss the purpose of transportation inventory and why is is a consideration when 12)
calculating EOQ?

13) An item has an annual demand of 25,000 units, a unit cost of $10, an order preparation cost 13)
of $10, and a carrying cost of 20%. It is ordered on the basis of an economic order quantity,
but the supplier has offered a 2% discount on orders of $10,000 or more. Should the
supplier's offer be accepted?

14) Discuss the characteristics or assumptions of the non instantaneous receipt model. 14)

15) An item has a setup cost for production of $500 per order and the inventory carrying costs 15)
for the item is $12 per year. The demand for the item is constant at 11 units per day. The
production rate is 50 units per day while the item is being produced. What is the non
instantaneous economic order quantity?

16) The annual demand is 10,000 units, the ordering cost if $30 per order, the carrying cost is 16)
20% and the unit cost if $15. The order quantity is 600 units. Calculate the a. annual
ordering cost, b. the annual carrying cost, and c. the total annual cost.

17) The annual demand for a SKU is 10,075 units and it is ordered in quantities of 650 units. 17)
Calculate the average inventory and the number of orders placed per year.

18) An item has an annual demand of $5,000, preparation costs of $20 per order, and a carrying 18)
cost of 20%. What is the EOQ in dollars?

19) How do order quantities and just-in-time effect using the EOQ formula? 19)

20) The objectives of inventory management are to provide the required level of customer 20)
service and to reduce the sum of all costs involved. What questions must be answered to
achieve these objectives?

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

21) Inventory management personnel must establish decision rules so top management will know 21)
when to order and how much.

22) There is no reason to calculate the EOQ for made-to-order items in which the customer specifies 22)
the order quantity,t he shelf life of the product is short, or the length of the run is limited by tool life
or raw material batch size.

23) For a family of items, the ordering costs and the carrying costs are generally the same for each item. 23)

24) Some suppliers require a minimum order. 24)

25) As the order quantity increases, the average inventory and the annual cost of carrying inventory 25)
decrease.

26) A variation on the fixed-order quantity system is the mix-max system where an order is placed 26)
with the quantity available rises above the order point.

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27) Parts are often ordered in convenient packages such as pallet loads, cases, or dozens, and it is 27)
adequate to pick the package quantity closest to the EOQ.

28) It is usually east to determine accurately the cost of carrying inventory and the cost of ordering. 28)

29) One problem in using the EOQ formula is in determining the cost of ordering and the cost of 29)
carrying inventory.

30) If demand is lumpy and replenishment occurs over time, EOQ will produce the best results. 30)

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Answer Key
Testname: CH10

1) B
2) C
3) C
4) C
5) C
6) D
7) D
8) C
9) B
10) A
11) The assumptions on which the EOQ is based are as follows: demand is relatively constant and is known, the item is
produced or purchased in lots or batches and not continuously, order preparation costs and inventory-carrying costs
are constant and known, and replacement occurs all at once.
12) Transportation inventory is a consideration when using EOQ. Carriers give rates based on the amount shipped. A full
load costs less per ton to ship than a part load. This is similar to the price break given by suppliers for large quantities
and the same type of analysis can be used.
13) No discount, total cost = $251,000
Discount lot size, total cost = $246,230
Thus taking the discount is cheaper based on total costs alone
14) In come cases, when a replenishment is made, the order is not all received at one time. The most common reason for
this is that the ordered material is being produced over an extended period of time yet material is received for the
order as it is being produced. In this case, the EOQ model is modified to reflect the rate of production as related to
demand.
15) 655 units
16) 1. $500
b. $900
c. $1,400
17) Average cycle inventory = order quantity/2 = 650/2 = 325 units.
Number of orders per year - annual demand/order quantity = 10.075/650 = 15.5
18) $1,000
19) JIT has a profound effect on the amount of inventory to be produced at one time. THe replenishment quantity of an
item is adjusted to match the demand of the next operation in the supply chain. This adjustment leads to smaller lot
sizes and is often determined by the frequency of shipments to a customer or the size of an easily moved container
rather than by calculation.
20) To basic questions must be answered: (1) How much should be ordered at one time? and (2) When should an order be
placed?
21) FALSE
22) TRUE
23) TRUE
24) TRUE
25) FALSE
26) FALSE
27) TRUE
28) FALSE
29) TRUE
30) FALSE