Self-Test

  • Before taking the self-test, refer to the learning objectives at the beginning of the chapter, the notes in the margins, and the glossary at the end of the chapter.

  • Use the key at the back of the book to correct your answers.

  • Restudy pages that correspond to any questions that you answered incorrectly or material you feel uncertain about.

  1. Which of the following is a basic component of an inventory control system?

    1. planning what inventory to stock and how to acquire it

    2. forecasting the demand for parts and products

    3. controlling inventory levels

    4. developing and implementing feedback measurements for revising plans and forecasts

    5. all of the above are components of an inventory control system

  2. Which of the following is a valid use of inventory?

    1. the decoupling function

    2. to take advantage of quantity discounts

    3. to avoid shortages and stockouts

    4. to smooth out irregular supply and demand

    5. all of the above are valid uses of inventory

  3. One assumption necessary for the EOQ model is instantaneous replenishment. This means

    1. the lead time is zero.

    2. the production time is assumed to be zero.

    3. the entire order is delivered at one time.

    4. replenishment cannot occur until the on-hand inventory is zero.

  4. If the EOQ assumptions are met and a company orders the EOQ each time an order is placed, then the

    1. total annual holding cost is minimized.

    2. total annual ordering cost is minimized.

    3. total of all inventory cost is minimized.

    4. order quantity will always be less than the average inventory.

  5. If the EOQ assumptions are met and a company orders more than the EOQ, then the

    1. total annual holding cost will be greater than the total annual ordering cost.

    2. total annual holding cost will be less than the total annual ordering cost.

    3. total annual holding cost will be equal to the total annual ordering cost.

    4. total annual holding cost will be equal to the total annual purchase cost.

  6. The reorder point is

    1. the quantity that is reordered each time an order is placed.

    2. the amount of inventory that would be needed to meet demand during the lead time.

    3. equal to the average inventory when the EOQ assumptions are met.

    4. assumed to be zero if there is instantaneous replenishment.

  7. If the EOQ assumptions are met, then

    1. the annual stockout cost will be zero.

    2. the total annual holding cost will equal the total annual ordering cost.

    3. the average inventory will be one-half the order quantity.

    4. all of the above are true.

  8. In the production run model, the maximum inventory level will be

    1. greater than the production quantity.

    2. equal to the production quantity.

    3. less than the production quantity.

    4. equal to the daily production rate plus the daily demand.

  9. Why is the annual purchase (material) cost not considered to be a relevant inventory cost if the EOQ assumptions are met?

    1. This cost will be zero.

    2. This cost is constant and not affected by the order quantity.

    3. This cost is insignificant compared with the other inventory costs.

    4. This cost is never considered to be an inventory cost.

  10. A JIT system will usually result in

    1. a low annual holding cost.

    2. very few orders per year.

    3. frequent shutdowns in an assembly line.

    4. high levels of safety stock.

  11. Manufacturers use MRP when

    1. the demand for one product is dependent on the demand for other products.

    2. the demand for each product is independent of the demand for other products.

    3. the demand is totally unpredictable.

    4. the purchase cost is extremely high.

  12. In using marginal analysis, an additional unit should be stocked if

    1. MP=ML.

    2. the probability of selling that unit is greater than or equal to MP/(MP+ML).

    3. the probability of selling that unit is less than or equal to ML/(MP+ML).

    4. the probability of selling that unit is greater than or equal to ML/(MP+ML).

  13. In using marginal analysis with the normal distribution, if marginal profit is less than marginal loss, we expect the optimal stocking quantity to be

    1. greater than the standard deviation.

    2. less than the standard deviation.

    3. greater than the mean.

    4. less than the mean.

  14. The inventory position is defined as

    1. the amount of inventory needed to meet the demand during the lead time.

    2. the amount of inventory on hand.

    3. the amount of inventory on order.

    4. the total of the on-hand inventory plus the on-order inventory.

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