T/F The two basic questions in inventory management are how much to order and when to order
True
T/F Using the EOQ model, if an item's holding cost increases, its order quantity will decrease.
True. It will decrease because holding cost is in the denominator of the EOQ formula.
T/F Use of the fixed-interval model requires having a perpetual inventory system.
False. A periodic system would be used.
T/F With the A-B-C approach, items which have high unit costs are classified as A items.
False. A-B-C is based on the product of unit cost and annual volume.
T/F When using EOQ ordering, the order quantity must be computed in every order cycle.
False. Unless demand, holding cost, or ordering cost changing, the order quantity will not change.
T/F Inventory might be held to take advantage of order cycles.
True. Using an economic order quantity is an example of this
T/F The economic order quantity cannot be used when holding costs are a percentage of purchase cost.
False. Refer to example 3 in the textbook.
T/F Companies that can successfully use the A-B-C approach can avoid using EOQ models.
False. They still need to determine how much to order.
T/F The objective of inventory management is to minimize holding costs.
False. The objective of inventory management is to minimize total cost, which includes ordering costs and sometimes purchase costs (e.g. quantity discount models).
T/F Holding and ordering costs are inversely related to each other.
True. Changes in order quantity will cause one to increase and the other to decrease.
T/F A two-bin system is essentially a simple reorder point system.
True. Reorder when the first bin is empty.
T/F In the basic EOQ model, annual ordering cost and annual ordering cost are equal for the optimal order quantity.
True.
T/F Increasing the order quantity so that it is slightly above the EOQ would not increase the total cost by very much.
True. The total cost curve is flat to the right of the EOQ.
T/F A fixed-interval ordering system would be used for items that have independent demand.
True.
T/F A store that sells daily newspapers could use the single-period model for reordering.
True. The period is one day, and the news is "perishable" beyond one day.
Other things being equal, an increase in lead time for inventory orders will result in an increase in the:
a) order size
b) order frequency
c) REORDER POINT
Quantity models do not involve lead time.
If average demand for an item is 21 units per day, safety stock is 4 units, and lead time is 2 days, the ROP will be:
a) 84
b) 46
c) 42
d) none of these
ROP = d x LT + SS = 21 x 2 + 4
In an A-B-C system, B items typically represent about this percentage of items:
a) 90%
b) 75%
c) 50%
d) 30%
Which model does not take into account the amount of inventory on hand?
a) FOI
b) ROP
c) EOQ
The EOQ factors are demand, ordering costs, and carrying costs.
Which product is usually bought on an ROP basis?
a) textbooks
b) wedding gifts
c) SUGAR
d) newspapers
Buy more when quantity on hand gets low.
Which product is usually bought on a fixed interval basis?
a) TEXTBOOKS
b) wedding gifts
c) sugar
d) newspapers
Usually bought once per semester.
In the two-bin system, the quantity in the second bin is equal to the:
a) EOQ
b) ROP
c) FOI
d) none of these
The second bin holds the reorder point quantity.
Using the basic EOQ model, if the ordering cost double, the order quantity will be:
a) double its former value
b) about 50% it's former value
c) ABOUT 71% OF ITS FORMER VALUE
d) unaffected
Because S in under the square root sign, multiplying its value by 2 will increase the EOQ by the square root of 2, which is .707
If a decrease in unit price causes the average demand rate to increae, which one of these would not increase?
a) the EOQ
b) LEAD TIME
c) annual holding cost
d) the ROP
Every other choice is a function of demand.
Setup costs are analogous to which one of these costs?
a) shortage
b) holding
c) excess
d) ORDERING
Both setup and ordering costs are in the numerator of the quantity formula, and both are independent of order size.