Managing Inventory

A major challenge in inventory management is to maintain a balance between inventory investment and customer service.

• TRUE

• FALSE

▶Work-in-process inventory is devoted to maintenance, repair, and operating materials

• TRUE

• FALSE

▶ABC analysis classifies inventoried items into three groups, usually based on annual units or quantities used

• TRUE

• FALSE

Which of the following is NOT one of the four main types of inventory?

• raw material inventory

• work-in-process inventory

• maintenance/repair/operating supply inventory

• safety stock inventory

• finished-goods inventory

▶Which of the following statements about ABC analysis is FALSE?

• ABC analysis is based on the presumption that controlling the few most important items produces the vast majority of inventory savings.

• In ABC analysis, "A" items should have tighter physical inventory control than "B" or "C" items have.

• In ABC analysis, forecasting methods for "C" items may be less sophisticated than for "A" items.

• ABC analysis is based on the presumption that all items must be tightly controlled to produce important cost savings.

• Criteria other than annual dollar volume, such as high holding cost or delivery problems, can determine item classification in ABC analysis.

A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost ________ per year in total annual inventory (holding and setup) costs.

• $400

• $800

• $1200

• Zero; this is a class C item.

• Cannot be determined because the unit price is not known.

A product has a demand of 4000 units per year. Ordering cost is $20, and holding cost is $4 per unit per year. The cost-minimizing solution for this product is to order:

• all 4000 units at one time

• 200 units per order

• every 20 days.

• 10 times per year

• none of the above

▶An inventory decision rule states, "When the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered." Which of the following statements is TRUE?

• One hundred is the reorder point, and 14 is the order quantity

• Fourteen is the reorder point, and 100 is the order quantity.

• The number 100 is a function of demand during lead time.

• Fourteen is the safety stock, and 100 is the reorder point

• None of the above is true.

▶When quantity discounts are allowed, the cost-minimizing order quantity:

• is always an EOQ quantity.

• minimizes the sum of holding and ordering costs.

• minimizes the unit purchase price.

• may be a quantity below that at which one qualifies for that price.

• minimizes the sum of holding, ordering, and product costs

▶If the standard deviation of demand is six per week, demand is 50 per week, and the desired service level is 95%, approximately what is the statistical safety stock?

• 8 units

• 10 units

• 16 units

• 64 units

• Cannot be determined without lead time data