CHAPTER 8: INVENTORY MANAGEMENT

1. Which of the following industries should apply the theory of lean supply chain?

• A. Gasoline in ustry

• B. Technological products

• C. Fashionable goods

• D. Automobile industry

2. Which one of the following statements regarding the Economic Order Quantity (EOQ) is true?

• A. If an order quantity is smaller than the EOQ, the annual holding cost is higher than the annual ordering cost.

• B. The EOQ model assumes a variable lead time.

• C. Quantity discounts are possible.

• D. If an order quantity is smaller than the EOQ, the annual holding cost is lower than the annual ordering cost.

If an item is ordered at its economic order quantity, the annual carrying cost should be:

• A. equal to the annual ordering cost.

• B. slightly less than the annual ordering cost.

• C. twice the annual purchase price.

• D. the square root of the annual ordering cost.

3. The trade-off that exists between carrying and ordering costs is that they respond in opposite ways to the number of orders or size of orders. That is, an increase in the number of orders leads to..............order costs and............carrying costs.

• A. higher; lower

• B. higher; higher

• C. lower; higher

• D. lower; lower

The trade-off that exists between carrying and ordering costs is that they respond in opposite ways to the number of orders or size of orders. That is, an decrease in the number of orders leads to............order costs and.............carrying costs.

• A. higher; lower

• B. lower; lower

• C. lower; higher

• D. higher; higher

The purchase cost of a widget is $10, and the holding rate is 50% of purchase cost; cost of processing an order is $25, annual demand is for 400 widgets, and supply and usage patterns are stable. What is the economic order quantity (EOQ)?

• A. 73.45

• B. 63.24

• C. 33.24

• D. 87.62

5. What concept can be viewed as a combination of processes, functions, activities, relationships, and pathways along which products, services, information, and financial transactions move in and between enterprises from original producer to ultimate end user or consumer?

• A. interorganizational coordination

• B. logistics

• C. operations

• D. supply chain

6. All of the following are suggestions for dealing with dead stock (inventory), except____:

• A. aggressive marketing

• B. donate to charities

• C. throw it away

• D. All answers are correct

8. When demand and delivery lead time are known and constant, and demand is nine per day, and purchase lead time is four days, the reorder point is:

• A. 13

• B. 8

• C. 32

• D. 36

9. Which of the following is the reason that companies hold a supply of inventory?

• A. Companies would like to purchase in bulk to take advantage of quantity discounts

• B. Companies would like to increase inventory costs

• C. Companies would like to increase production change

• D. Companies would like to increase setup costs