Taylor Mgmt-science10 Tif 16

Introduction to Management Science, 10e (Taylor)

Introduction to Management Science, 10e (Taylor)

Chapter 16 Inventory Management

1) Independent demand items are used internally to produce a final product.

Answer: FALSE

Diff: 2Page Ref: 744

Main Heading: Elements of Inventory Management

Key words: dependent demand items

2) Dependent demand items are final products demanded by an external customer.

Answer: FALSE



Key words: independent demand items

3) Inventory costs include carrying, ordering, and shortage costs.

Answer: TRUE



Key words: inventory costs

4) The purpose of inventory management is to determine how much and when to order.

Answer: TRUE



Key words: inventory management

5) In a continuous inventory system, a constant amount is ordered when inventory declines to a predetermined level.

Answer: TRUE


Main Heading: Inventory Control Systems

Key words: inventory control systems, continuous inventory system

6) In a periodic inventory system, a constant amount is ordered when inventory declines to a predetermined level.

Answer: FALSE



Key words: continuous inventory system

7) The EOQ is the optimal order quantity that will minimize total carrying costs.

Answer: FALSE


Main Heading: The Basic EOQ Model

Key words: economic order quantity models, EOQ models

8) Assumptions of the basic EOQ model include constant demand, no shortages, constant lead time, and gradual usage.

Answer: FALSE




9) The non-instantaneous receipt model applies only to manufacturing.

Answer: FALSE


Main Heading: The EOQ Model with Non-Instantaneous Receipt

Key words: EOQ model with non-instantaneous receipt

10) The EOQ model with shortages does not allow backorders.

Answer: FALSE


Main Heading: The EOQ Model with Shortages

Key words: EOQ model with shortages

11) The basic EOQ model plays no role in determining order sizes in the presence of quantity discounts.

Answer: FALSE


Main Heading: Quantity Discounts

Key words: EOQ model quantity discounts

12) Quantity discounts are always evaluated with carrying cost as a percentage of price.

Answer: FALSE



Key words: EOQ model quantity discounts

13) The service level is the probability that the inventory available during lead time will meet demand.

Answer: TRUE


Main Heading: Determining Safety Stocks Using Service Levels

Key words: service level, safety stocks

14) If service level is 50%, then safety stock is equal to 50% of lead time demand.

Answer: FALSE



Key words: safety stocks, service levels

15) The reorder point is the date when a new order should be placed.

Answer: FALSE


Main Heading: Reorder Point and Safety Stock

Key words: reorder point

16) If lead time and demand are constant, safety stock is equal to demand multiplied by lead time.

Answer: FALSE


Main Heading: Reorder Point and Safety Stock

Key words: safety stock

17) Periodic inventory systems normally require smaller safety stock than a continuous inventory system.

Answer: FALSE


Main Heading: Economic Order Quantity Models

Key words: periodic inventory system

18) Techniques for inventory analysis are widely used to analyze other types of problems.

Answer: FALSE



Key words: inventory system

19) Carrying costs include storage cost, interest and depreciation.

Answer: TRUE




20) Ordering costs include transportation, shipping and inspection.

Answer: TRUE




21) Shortage costs include loss of customer goodwill.

Answer: TRUE




22) If a business frequently runs out of inventory their service levels are negative.

Answer: FALSE



Key words: service level

23) __________ demand items are generally final products demanded by customers.

Answer: independent




24) The purpose of inventory management is to determine __________ and __________ to order.

Answer: how much/when




25) __________ demand items are used internally to produce a final product.

Answer: dependent




26) Inventory __________ costs include storage cost and the cost of capital.

Answer: carrying



Key words: carrying cost

27) Inventory __________ costs include transportation and inspection.

Answer: ordering



Key words: ordering costs

28) A __________ occurs when customer demand cannot be met because of insufficient inventory.

Answer: shortage or stock out



Key words: shortage or stock out costs

29) In a __________ inventory system, a constant amount is ordered when inventory declines to a predetermined level.

Answer: continuous




30) In a __________ inventory system an order is placed for a variable amount after a fixed passage of time

Answer: periodic




31) __________ is the optimal order quantity that will minimize the total inventory costs.

Answer: EOQ or economic order quantity



Key words: economic order quantity, EOQ

32) A __________ occurs when an item is out of stock and is sold to the customer when a shipment arrives.

Answer: backorder



Key words: economic order quantity model, EOQ model assumptions

33) Costs involved in a typical inventory model include __________ and __________.

Answer: carrying costs and ordering costs



Key words: EOQ model, average inventory

34) In the basic EOQ model, as the size of the order increases, the annual __________ cost decreases.

Answer: ordering



Key words: economic order quantity model inventory costs, ordering costs

35) In the basic EOQ model, as the size of the order increases, the annual __________ cost increases.

Answer: carrying



Key words: economic order quantity model, inventory costs, carrying costs

36) In the quantity discounts model, the __________ must be included in the total cost calculation. This variable is not included in the basic EOQ model.

Answer: purchase price



Key words: economic order quantity model inventory costs, carrying costs

37) If all the variables are held constant, the total inventory cost in a non-instantaneous receipts model is __________ than the total cost in the basic EOQ model.

Answer: larger or higher



Key words: production lot size model, non-instantaneous receipts model

38) The __________ determines when an order should be placed for a continuous review inventory system.

Answer: reorder point




39) __________ is inventory that is used to help protect against stockouts.

Answer: Safety Stock




40) __________ is the probability that the inventory available during the lead time will meet demand.

Answer: Service level



Key words: service level

41) If lead time and demand are constant then __________ is zero.

Answer: safety stock




42) For the __________ inventory system, Q, the quantity ordered, can vary.

Answer: periodic




43) The EOQ model is __________ , or resistant to errors in the cost estimates and demand.

Answer: robust




44) __________ costs and _________ costs react inversely to each other in response to an increase in order size.

Answer: Carrying and ordering




45) The basic EOQ model assumes that __________ is known with certainty and is relatively constant over time.

Answer: demand



Key words: EOQ model, econ order quantity models, assumption of EOQ models

46) In the basic EOQ model, if D=80 per month, Co=$13, and Cc=$11 per unit per month, what is the EOQ?

Answer: 13.75



Key words: EOQ model, economic order quantity models


Answer: 9.49





Answer: 16.33




49) In the basic EOQ model, if annual demand is 50 units, carrying cost is $2 per unit per year, and ordering cost is $15, what is the EOQ?

Answer: 27.39




A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead time to obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per week and a standard deviation of 40 units per week. The desired service level is 98.5%. The ordering cost is $20, and carrying cost is 20% of the items cost, which is $10.

50) Determine the order quantity for product Y. (Assume 52 weeks of operation per year.)

Answer: 456.07



Key words: economic order quantity model, EOQ model

51) Determine the annual setup cost and the annual carrying cost for product Y. (Assume 52 weeks of operation per year.)

Answer: 456.07



Key words: the annual setup cost, economic order quantity models

52) Determine the total annual inventory cost for product Y. Include the item cost in your calculations. (Assume 52 weeks of operation per year.)

Answer: 104,912



Key words: the annual setup cost, economic order quantity models

53) Determine the reorder point for product Y.

Answer: 522.76


Main Heading: Reorder Point

Key words: economic order quantity models, reorder point

The injection molding department of Alver Inc. uses an average of 40 pounds of a special powder per day. The plant operates 250 days per year. The daily usage of the powder is normally distributed with a standard deviation of 5 pounds per day. The lead time to obtain the powder from a supplier is 9 days. The annual holding cost is $2. per unit and the cost of ordering the powder is $50.

54) How many units should Alver Inc. order in order to minimize annual ordering and carrying cost?

Answer: 707.11



Key words: economic order quantity model

55) How many orders will be placed each year?

Answer: 14.14 orders



Key words: economic order quantity model, number of orders

56) Determine the reorder point for a service level of 97%.

Answer: 388.2 units



Key words: reorder point, service level

The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order every three days. Delivery lead time is two days.

57) How much safety stock of peanut butter should they have for a 99% service level?

Answer: Z = 2.33, r = 3, and L = 2

SS = 2.33 (4)(5)1/2 = 20.8 or 21 jars



Key words: payoff table

58) If there are 4 jars on the shelf when an order is placed, how much should the store order?

Answer: Base stock level =(tb + L) + safety stock = 12(5) + 21 = 60 + 21 = 81.

Order quantity = 81 - 4 = 77 boxes.



Key words: payoff table

59) The daily demand for a product is normally distributed with a mean of 80 and a standard deviation of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs $8 and the carrying rate per year is 10% of the item cost. Determine the economic order quantity.

Answer: 1209




60) In a non-instantaneous receipt model, daily demand is 55 units and daily production is 120 units, Co=$70 and Cc=$4 per unit/year. The production facility operates 300 days per year. What is the maximum inventory level?

Answer: 411.63 units

Diff: 1Page Ref: 754-755


Key words: EOQ model with non-instantaneous receipt

61) In a non-instantaneous receipt model, daily demand is 55 units and daily production is 120 units, Co=$70 and Cc=$4 per unit/year. The production facility operates 300 days per year. What is the optimal order quantity?

Answer: 759.93



Key words: non-instantaneous receipt model, economic production model

62) A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is $20 and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced in-house where the daily production rate is 50 units. Assume 360 working days per year and determine the economic production quantity.

Answer: 490 units



Key words: econ order/prod quantity, non-instantaneous receipts model

63) A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is $20 and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced in-house where the daily production rate is 50 units. Assume 360 working days per year and determine the annual ordering cost and carrying cost.

Answer: $147 and $147 for a total of $294.



Key words: econ order/prod quant, non-instant receipt mod, an order/carry cost

64) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the total annual shortage cost?

Answer: 296.51



Key words: EOQ model with shortages, the total annual shortage cost

65) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the optimal order quantity?

Answer: Qopt = 495.74 units



Key words: EOQ model with shortages, the optimal order quantity

66) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the annual ordering cost?

Answer: 1355.55



Key words: the annual ordering cost, EOQ model with shortages

67) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the optimal stock out level?

Answer: Sopt = 108.44 units



Key words: optimal stock out level, EOQ model with shortages

68) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the annual carrying cost?

Answer: 1059.03



Key words: the annual carrying cost, EOQ model with shortages

69) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and CS =$25, what is the total minimum annual inventory cost?

Answer: TCmin = 2711.09



Key words: total minimum annual inventory cost, EOQ model with shortages

A company distributes repair parts for high end appliances. The annual demand is 81,000 and the company operates 300 days per year. The annual carrying cost is 20% of the item cost, which is $500. The ordering cost is estimated at $60 and the shortage cost is $150.

70) Determine the optimal order quantity.

Answer: 402.5




71) Determine the optimal shortage level.

Answer: 161



Key words: EOQ model with shortages, the optimal shortage level

72) How many order per year will they place?

Answer: 201



Key words: EOQ model with shortages, the annual carrying cost

73) What is the maximum inventory level?

Answer: 242



Key words: EOQ model with shortages, the annual setup cost

74) Determine the annual shortage cost.

Answer: $4,830



Key words: EOQ model with shortages, the annual shortage cost

75) If the daily demand is 30 and the lead time in days is 3, what is the reorder point?

Answer: 90





Answer: 134





Answer: 100




78) Sonny Lawler's law office uses EOQ models to manage their office supplies. They've been ordering ink refills for their printers in quantities of 60 units. The firm estimates carrying cost at 40% of the $10 unit cost and that annual demand is about 240 units per year. The assumptions of the basic EOQ model are thought to apply. For what value of ordering cost would its action be optimal?

Answer: $30




79) Dana Swor's Dream Store sells weight loss products. Her best-selling item, an energy booster and fat burning pill, has an annual demand of 400 units. Ordering cost is $40 and carrying cost is $5 per unit year. How many units should she order to minimize total inventory costs?

Answer: 80



Key words: EOQ model

80) Annual demand for a paperback dictionary at the bookstore is 1200 units. Ordering costs are 350, carrying costs are $6 per unit per year, and the lead time is 9 days. The bookstore is open for 300 days of the year. What is the reorder point ?

Answer: 36




81) If average demand for an inventory item is 200 units per day, lead time is 3 days, and safety stock is 100 units, what is the reorder point?

Answer: 700



Key words: safety stock, reorder point


Answer: 990




83) Annual demand for notecards at Suzie's Stationery shop is 10,000 units. Deliveries take about 5 working days and Suzie operates 300 days per year. Calculate the reorder point for the notecards that she stocks.

Answer: 167 notecards = 33.33 X 5




A bakery uses an average of 60 ounces of organic orange juice daily. Demand is normally distributed with a standard deviation of 15 ounces. The bakery places orders every seven days. The lead time for delivery of the juice is three days.

84) Compute the safety stock required to achieve a 98% service level

Answer: 97 ounces




85) If the bakery has 190 ounces at the time an order is placed, how much should be ordered?

Answer: 697 - 190 = 507 ounces




86) The daily demand for a product is normally distributed with a mean of 80 and a standard deviation of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs $8 and the carrying rate per year is 10% of the item cost. Determine the reorder point to satisfy 90% of the orders.

Answer: 340.48



Key words: economic order quantity, reorder point

87) A bakery's use of corn syrup is normally distributed with a mean of 50 gallons per day and a standard deviation of 5 gallons per day. Lead time for delivery of the syrup is normal with a mean of 4 days and a standard deviation of 2 days. The manager wants a service level of 99 percent. Calculate the reorder point.

Answer: 434 gallons



Key words: reorder point, variable demand, variable lead time

88) A bakery's use of corn syrup is normally distributed with a mean of 50 gallons per day and a standard deviation of 5 gallons per day. Lead time for delivery of the syrup is normal with a mean of 4 days and a standard deviation of 2 days. The manager reorders when his inventory drops to 300 gallons. What cycle service level is implied by this policy?

Answer: z = .995, so service level = 84%



Key words: reorder point, variable demand/lead time, service level

89) A manager has just received a revised price schedule from a vendor. What order quantity should the manager use in order to minimize total costs? Annual Demand is 120 units, ordering cost is $10, and annual carrying cost is $1 per unit.

QuantityUnit Price

1-59$15

60-99$14

100 or more$13

Answer: Optimal Q = 49. TC(49) = $1849; TC(60)=$1730; TC (100) = $1622, so order 100.



Key words: quantity discounts, constant carrying cost per unit

90) An office manager uses 400 boxes of file folders per year. The price is $8.50 per box for an order size of 199 boxes or less, $8.00 per box for orders of 200 to 799 boxes, and $7.50 per box for an order of 800 or more boxes. Carrying cost is 20 percent of the price of the product and ordering costs are $80. What order quantity minimizes total annual cost?

Answer: Optimal Q = 194. TC (194) = $3730; TC (200) = $3520; TC (800) = $3640, so order 200.



Key words: quantity discounts, carrying cost as percent of price

91) __________ demand items are used internally to produce a final product.

A) Independent

B) Dependent

C) Assumed

D) Internal

E) Integrated

Answer: B




92) __________ demand items are final products demanded by an external customer.

A) Assumed

B) Dependent

C) Independent

D) External

E) Integrated

Answer: C



Key words: independent demand

93) Inventory costs include

A) carrying

B) ordering

C) shortage costs

D) all of the above

Answer: D




94) The purpose of inventory management is to determine

A) timing and cost of orders

B) quantity and cost of orders

C) timing and quantity of orders

D) ordering and carrying costs

Answer: C




95) A keyboard costs $1,000, and the annual holding cost is 25%. Annual demand is 10,000 units, and the order cost is $150 per order. What is the approximate economic order quantity?

A) 16

B) 70

C) 110

D) 183

Answer: C




96) In a(n) __________ inventory system a constant amount is ordered when inventory declines to a predetermined level.

A) optimal

B) economic

C) periodic

D) continuous

Answer: D




97) In a(n) __________ inventory system, an order is placed for a variable amount after a fixed passage of time.

A) periodic

B) continuous

C) optimal

D) economic

Answer: A




98) EOQ is a(n) __________ inventory system.

A) periodic

B) continuous

C) optimal

D) economic

Answer: B




99) EOQ is the optimal order quantity that will __________ total inventory costs.

A) maximize

B) minimize

C) steady

D) maintain

E) improve

Answer: B




100) Assumptions of the EOQ model include

A) constant demand and no shortages

B) constant lead time

C) instantaneous order receipt

D) all of the above

Answer: D




101) In the basic EOQ model, if lead time increases from 5 to 10 days , the EOQ will

A) double

B) increase, but not by double the amount

C) remain the same

D) decrease

Answer: C



Key words: EOQ model, econ order quantity models, assumption of EOQ models

102) The economic production quantity is 500 units (units are delivered to the user department as they come off the production line). If the firm decides to buy this item from an outside supplier rather than producing it, the economic purchase quantity would probably be (assume that inventory costs of production and purchasing an item are the same):

A) less than 500 units

B) more than 500 units

C) 500 units

D) the direction of change in quantity cannot be determined without additional information

Answer: B



Key words: economic production quantity model, non-instant receipts model

103) If order quantity is increased, annual holding cost __________, annual order cost __________, and change in annual total cost __________.

A) decreases, increases, is positive

B) decreases, increases, can not be determined

C) decreases, decreases, can not be determined

D) increases, decreases, is negative

E) increases, decreases, can not be determined

Answer: E




104) The EOQ minimizes total __________ cost.

A) inventory

B) purchase

C) ordering

D) marketing

E) carrying

Answer: C



Key words: EOQ model, economic order quantity models, inventory costs

105) In an EOQ model, as the carrying cost increases, the order quantity :

A) increases.

B) decreases.

C) remains the same

D) cannot be determined

Answer: B




106) In the basic EOQ model, if D=60 per month, S=$12, and H=$10 per unit per month, what is the EOQ?

A) 11

B) 12

C) 13

D) 14

Answer: B




107) In the basic EOQ model, if annual demand is 50, carrying cost is $2 per unity per year, and ordering cost is $15, what is the EOQ?

A) 27.39

B) 26.39

C) 25.39

D) 24.39

E) 22.39

Answer: A




108) The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order every three days. Delivery lead time is two days and they carry 21 jars for safety stock. If there are 4 jars on the shelf when an order is placed, how much should the store order?

A) 77

B) 81

C) 32

D) 36

E) cannot be determined from the information provided

Answer: A



Key words: periodic review

109) In a non instantaneous receipt model, daily demand is 55 units and daily production is 120 units, Co=$70 and Cc=$4 per unit per year. What is the maximum inventory level? (Assume that the facility is open 365 days per year)

A) 616.9

B) 618.4

C) 620.3

D) 622.9

E) 625.5

Answer: A



Key words: non-instantaneous receipt model

110) A firm is presently purchasing an itme for inventory using the basic EOQ model. They plan on making the product themselves and will be using the EOQ model based on non-instantaneous receipt of inventory. If everything else stays the same, what changes should the firm expect?

A) EOQ decreases

B) Total relevant inventory (annual setup and annual carrying) cost increase

C) Average inventory level decreases

D) Reorder point increases

E) Safety stock increases

Answer: C




111) When using the EOQ Formula with non-instantaneous production, as the demand rate (D) increases more than the rate of production, the EOQ:

A) increases

B) decreases

C) remains the same

D) cannot be determined

Answer: A




112) The diagram above represents which type of inventory model?

A) Economic Order Quantity (EOQ)

B) EOQ with Noninstantaneous Receipt

C) Economic Production Quantity

D) Fixed Period Model

E) none of the above

Answer: B



Key words: EOQ with noninstantaneous receipt

113) The slope of the line labeled "B" in the diagram above is:

A) Order rate

B) Rate of inventory demand

C) Production rate

D) Shipping rate

E) Production rate minus rate of inventory demand

Answer: E




114) The slope of the line labeled "A" in the diagram below is:

A) Order rate


C) Production rate

D) Shipping rate


Answer: C




115) The slope of the line labeled "C" in the diagram below is:

A) Order rate


C) Production rate

D) Shipping rate


Answer: B




116) The interval labeled "E" in the diagram below is:

A) Production cycle

B) Production run length

C) Shipping lead time

D) Inventory fill rate

Answer: A




117) The interval labeled "D" in the diagram below is:

A) Production cycle

B) Production run length

C) Shipping lead time

D) Inventory fill rate

Answer: B




118) A product has demand during lead time of 100 units, with a standard deviation of 25 units. What safety stock (approximately) provides a 95% service level?

A) 41

B) 55

C) 95

D) 140

Answer: A




119) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the total annual shortage cost?

A) 294.72

B) 296.51

C) 298.53

D) 299.17

E) 285.91

Answer: B




120) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the order quantity?

A) 394.72

B) 285.91

C) 495.74

D) 296.51

E) 456.34

Answer: C




121) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the optimal stock out level?

A) 96.44

B) 102.36

C) 108.44

D) 114.64

E) 121.43

Answer: C



Key words: EOQ model with shortages, the optimal stock out level

122) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the annual carrying cost?

A) 2711.09

B) 1059.03

C) 1355.55

D) 296.51

E) 495.74

Answer: B



Key words: EOQ model with shortages, the annual carrying cost

123) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per unit per year and Cs =$25, what is the annual ordering cost?

A) 2711.09

B) 1059.03

C) 1355.55

D) 296.51

E) 495.74

Answer: C



Key words: EOQ model with shortages, the annual ordering cost

The manager of the Quick Stop Corner Convenience Store (which is open 360 days per year) sells four cases of Stein soda each day (1,440 cases per year). Order costs are $8.00 per order. The lead time for an order is three days. Annual holding costs are equal to $57.60 per case.

124) If the manager orders 16 cases each time she placed an order, what is the average inventory level?

A) 4 cases

B) 8 cases

C) 12 cases

D) 20 cases

E) 16 cases

Answer: B




125) If the manager orders 16 cases each time she placed an order, how many orders would she place in a year?

A) 10

B) 22.5

C) 50

D) 72

E) 90

Answer: E




126) What is the optimal order quantity for Stein soda?

A) 4 cases

B) 8 cases

C) 12 cases

D) 20 cases

E) 16 cases

Answer: D




127) What is the reorder point for Stein soda?

A) 4 cases

B) 8 cases

C) 12 cases

D) 20 cases

E) 16 cases

Answer: C





A) 200

B) 220

C) 240

D) 260

E) 300

Answer: A




129) If the daily demand is 40 and the level time in days is 4, what is the reorder point?

A) 120

B) 140

C) 160

D) 180

E) 200

Answer: C




130) If the daily demand is 10 and the level time in days is 8, what is the reorder point?

A) 50

B) 60

C) 70

D) 80

E) 90

Answer: D





A) 300

B) 500

C) 600

D) 700

E) 800

Answer: D




132) Ruby owns a small caf and uses a linen supplier for her tablecloths. Whenever she needs more tablecloths, she calls the supplier. She uses an average of 12 tablecloths a day with a standard deviation of 3 tablecloths. Lead time is a constant 2 days. If Ruby is willing to accept a 5% stockout risk, what is the reorder point, rounded to the nearest tablecloth? Assume demand is normally distributed.

A) 28

B) 31

C) 34

D) 42


Answer: B




133) The service level is the probability that

A) the inventory will meet demand

B) the inventory available during lead time will meet demand

C) the inventory available during lead time will not meet demand

D) the inventory will not meet demand

Answer: B




134) What service level results in zero safety stock in reorder point calculations?

A) 0%

B) 33%

C) 50%

D) 100%

E) 80%

Answer: C




135) The __________ is the probability that the inventory available during lead time will meet demand.

A) service level

B) inventory level

C) review period

D) reorder point

E) maximum inventory level

Answer: A




136) If annual demand equals 1000 units, the number of working days per year is 250, Co=$300 per order and Cc=$3 per unit, how many days are between orders in the basic EOQ model?

A) 105

B) 110

C) 112

D) 115

E) 120

Answer: C




137) Annual demand for a paperback dictionary at a bookstore is 1200 units. The order cost is $350 and the carrying cost is $6 per unit per year. The number of working days per year is 365. What is the reorder point? Assume that the basic EOQ model is applicable.

A) 29.2

B) 29.4

C) 29.6

D) 29.8

E) 30.1

Answer: C




138) As service level increases, expected number of stock outs __________ and safety stock __________.

A) increase, increases

B) decrease, decreases

C) decrease, increases

D) increase, decreases

Answer: C




139) Adding 1.5 standard deviations of safety stock to the average demand during lead time will result in a service level of approximately:

A) 50%

B) 68.4%

C) 84.1%

D) 93.3%

E) 97.7%

Answer: D




140) A periodic inventory system

A) uses fixed order sizes at variable time intervals

B) normally requires a larger safety stock

C) cannot be used if demand is variable

D) is used to periodically manage inventory

Answer: B


Main Heading: Order Quantity for a Periodic Inventory System

Key words: periodic inventory system, fixed time period inventory system

141) Demand for a product is constant but lead time is variable. The demand during the lead time is normally distributed with a mean of 40 and a standard deviation of 4. They computed a reorder point of 45 units Approximately what service level is being used?

A) 85%

B) 90%

C) 95%

D) 98%


Answer: B




142) The economic order quantity is especially sensitive to which of the following?

A) ordering cost

B) carrying cost

C) annual demand

D) lead time


Answer: E




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Taylor Mgmt-science10 Tif 16

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