Inventory Management

Chapter 7—Inventory Management

TRUE/FALSE

Steering wheels purchased by Ford are an example of dependent demand.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-1 Bloom’s: Application Difficulty: Easy

Dependent demand must be forecasted to be accurate.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-1 Bloom’s: Knowledge Difficulty: Easy

The four categories of inventory are raw materials, intermediate assemblies, work-in-progress and finished goods.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-2 Bloom’s: Knowledge Difficulty: Easy

MRO supplies are a type of work-in-progress.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-2 Bloom’s: Knowledge Difficulty: Easy

The inventory turnover ratio shows how efficiently a firm is using its inventory to generate revenue.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-3 Bloom’s: Comprehension Difficulty: Easy

MRO supplies are a type of indirect costs.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-3 Bloom’s: Knowledge Difficulty: Easy

Cycle counting means to physically count inventory on a periodic basis.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-4 Bloom’s: Knowledge Difficulty: Easy

The ABC inventory control prioritizes dependent demand inventory items into three groups, A, B, and C. A items receive the smallest amount of safety stock, while C items typically have the most safety stock.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-4 Bloom’s: Comprehension Difficulty: Easy

Pareto Analysis means that 20 percent of the items get about 80 percent of the safety stock.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-4 Bloom’s: Comprehension Difficulty: Easy

The ABC inventory matrix combines two ABC analyses—one is based on current inventory valuation and the other is based on annual inventory dollar usage..

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-4 Bloom’s: Comprehension Difficulty: Easy

Radio Frequency Identification (RFID) is beginning to replace bar code inventory tracking, however a weakness is that it requires a direct line of sight for RFID tags to be read.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-5 Bloom’s: Knowledge Difficulty: Easy

The economic order quantity model (EOQ) is the optimal independent demand order quantity that minimizes total annual inventory costs.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Knowledge Difficulty: Easy

One of the assumptions of the economic order quantity model (EOQ) is that purchase price must remain constant.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Knowledge Difficulty: Easy

The EOQ equation is derived by setting the annual purchase cost equal to the annual holding cost.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Knowledge Difficulty: Easy

The optimal order quantity for the quantity discount model is always at one of the price breakpoints.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-7 Bloom’s: Knowledge Difficulty: Easy

In the economic manufacturing quantity model (EMQ), the annual consumption rate must be less than the annual production rate.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-7 Bloom’s: Comprehension Difficulty: Easy

When demand and lead time are constant, the reorder point (ROP) is less than the demand during lead time.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-8 Bloom’s: Knowledge Difficulty: Easy

When both the demand and lead time of a product are variable, firms must keep a higher safety stock level compared to variations in just demand, to offer the same service level.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-8 Bloom’s: Knowledge Difficulty: Easy

The statistical reorder point is calculated as the average demand during the delivery lead time plus the desired safety stock.

ANS: T PTS: 1

BUSPROG: Analytic LO: 7-8 Bloom’s: Knowledge Difficulty: Easy

The (s, S) continuous review policy is to order the same quantity, Q, when physical inventory reaches the reorder point.

ANS: F PTS: 1

BUSPROG: Analytic LO: 7-9 Bloom’s: Knowledge Difficulty: Easy

MULTIPLE CHOICE

Independent demand is the:

Internal demand for all end-item parts and materials.

Demand for a firm’s end products.

Forecasted demand for purchased items.

Absolute demand for all items.

ANS: B PTS: 1

BUSPROG: Analytic LO: 7-1 Bloom’s: Comprehension Difficulty: Easy

Which of the following would be considered a dependent demand item?

a.	Bicycle tires used to assemble a bicycle
b.	Televisions
c.	Furniture
d.	Retail customers

ANS: A PTS: 1

BUSPROG: Analytic LO: 7-1 Bloom’s: Comprehension Difficulty: Easy

Lubricants for production equipment which are not parts of the final products are called:

a.	Raw materials
b.	Work-in-process
c.	Maintenance, repair and operating supplies
d.	Finished goods
e.	Cycle stock

ANS: C PTS: 1

BUSPROG: Analytic LO: 7-2 Bloom’s: Knowledge Difficulty: Easy

Which one of the following is NOT a reason for firms to carry inventory?

a.	To meet variations in product demand
b.	To increase production change/setup costs
c.	To allow for production scheduling flexibility
d.	To take advantage of quantity discounts
e.	To maintain independence of operations

ANS: B PTS: 1

BUSPROG: Analytic LO: 7-2 Bloom’s: Comprehension Difficulty: Easy

Which of the following is a disadvantage of carrying too much inventory?

a.	it creates an unnecessary waste of scarce resources.
b.	it leads to higher annual inventory ordering costs.
c.	it leads to lower average finished goods inventories.
d.	it increases the need to purchase items.
e.	it reduces the need to conduct cycle counts.

ANS: A PTS: 1

BUSPROG: Analytic LO: 7-3 Bloom’s: Comprehension Difficulty: Easy

If at the end of the year, the cost of revenue = $2,500, total revenue = $12,000 and inventory value = $2,000, the inventory turnover ratio would be:

a.	0.208
b.	0.375
c.	2.667
d.	0.800
e.	1.250

ANS: E PTS: 1

BUSPROG: Analytic LO: 7-3 Bloom’s: Comprehension Difficulty: Moderate

In the ABC Inventory Matrix shown, inventory in area Y suggests:

a.	under-stocked A and B items.
b.	under-stocked B and C items.
c.	overstocked A and B items.
d.	over-stocked B and C items.
e.	inventory that matches sales.

ANS: E PTS: 1

BUSPROG: Analytic LO: 7-4 Bloom’s: Analysis Difficulty: Easy

Classify the following inventory items as either A, B, or C items using the ABC inventory control system:

Item #	Annual Sales	Unit Cost
1	130 units	$ 4.00
2	400 units	15.30
3	25 units	17.00
4	1320 units	1.25
5	90 units	2.10

a.	item 1 (C), item 2 (A), item 3 (C), item 4 (B), item 5 (C)
b.	item 1 (B), item 2 (A), item 3 (A), item 4 (C), item 5 (C)
c.	item 1 (C), item 2 (B), item 3 (C), item 4 (A), item 5 (C)
d.	item 1 (A), item 2 (B), item 3 (C), item 4 (A), item 5 (B)
e.	item 1 (B), item 2 (C), item 3 (B), item 4 (C), item 5 (A)

ANS: A PTS: 1

BUSPROG: Analytic LO: 7-4 Bloom’s: Application Difficulty: Moderate

Which of the following would refer to the 80/20 rule when applied to the ABC inventory control system?

a.	80 percent of the items account for 20 percent of the groups.
b.	20 percent of the items account for 80 percent of the tasks.
c.	80 percent of the unit cost accounts for 20 percent of the items.
d.	80 percent of the total annual $ usage is accounted for, by 20 percent of the items.
e.	None of these.

ANS: D PTS: 1

BUSPROG: Analytic LO: 7-4 Bloom’s: Comprehension Difficulty: Easy

Which of the following describes a global RFID challenge?

a.	Foreign firms will not use global RFID since the field communication standards tend to vary from country to country.
b.	Globally, the RFID industry does not have its own UHF spectrum allocation.
c.	RFID tags are passive in undeveloped countries.
d.	RFID can track outbound shipments only.
e.	All of the above.

ANS: B PTS: 1

BUSPROG: Diversity LO: 7-5 Bloom’s: Comprehension Difficulty: Easy

The primary purpose of the basic economic order quantity (EOQ) model is to:

a.	Calculate the reorder point, so that replenishments take place at the proper time
b.	Minimize the sum of purchase cost and holding cost
c.	Maximize the customer service level
d.	Calculate the optimum safety stock level
e.	None of the above

ANS: E PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Comprehension Difficulty: Easy

Which of the following is TRUE regarding the EOQ figure below?

a.	Curve J represents the annual ordering cost, and curve L represents the annual holding cost.
b.	A lot size of G has an annual total cost of about C.
c.	At lot size H both holding costs and ordering costs exceed the annual total cost.
d.	The EOQ is at lot size G, and curve K is the annual holding cost curve.

ANS: D PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Application Difficulty: Easy

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

a.	slightly less than the annual ordering cost.
b.	equal to the annual ordering cost.
c.	twice the annual purchase price.
d.	the square root of the annual ordering cost.
e.	none of the above.

ANS: B PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Comprehension Difficulty: Easy

What inventory factor may be omitted from the basic EOQ derivation because it is a constant?

a.	Annual order-processing cost
b.	Annual purchase cost of goods
c.	Annual capital cost
d.	Annual setup costs
e.	Annual total costs

ANS: B PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Comprehension Difficulty: Easy

Which of the following is NOT an assumption of the economic order quantity (EOQ) model?

a.	Demand is known, constant, and independent.
b.	Lead time is known and constant.
c.	Quantity discounts are not possible.
d.	Production and use occur simultaneously.
e.	The only variable costs are setup cost and holding cost.

ANS: D PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Comprehension Difficulty: Easy

The cost of a product is $5, and the carrying cost rate is 20%; the cost of processing an order is $45 and the annual demand is 1000. What is the economic order quantity (EOQ)?

a.	5
b.	20
c.	25
d.	200
e.	300

ANS: E PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Application Difficulty: Easy

Which one of the following statements regarding the economic order quantity (EOQ) is true?

a.	The EOQ model combines several different item orders to the same supplier.
b.	If an order quantity is larger than the EOQ, then the annual holding cost will exceed the annual ordering cost.
c.	The EOQ model assumes a variable demand pattern.
d.	When the holding cost rate drops, both the annual holding cost and the EOQ decrease.
e.	The EOQ is frequently used to determine the optimum shipping quantity.

ANS: B PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Comprehension Difficulty: Easy

Use the information below to calculate the number of orders per year when using the EOQ:

	Annual demand for an item is 43,000 units
	The cost to place an order is $200
	The per unit cost of the item is $50.00
	The annual holding rate is 35%

Choose the closest answer.

a.	49
b.	81
c.	123
d.	202

ANS: A PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Application Difficulty: Moderate

If your company had an annual purchase cost of items equal to $2,000,000, an annual holding cost of $150,000 and an annual ordering cost of $50,000 this scenario would reveal that:

a.	Your order size was lower than the EOQ
b.	Your order lot size was equal to the EOQ
c.	Your order lot size was higher than the EOQ
d.	Nothing because there is insufficient information to discern where the EOQ would be.

ANS: C PTS: 1

BUSPROG: Analytic LO: 7-6 Bloom’s: Application Difficulty: Easy

The EOQ model with quantity discounts attempts to determine:

a.	the lowest purchasing price.
b.	whether to use a fixed-quantity or fixed-period order policy.
c.	how many units should be ordered.
d.	the shortest lead time to use.
e.	the lowest amount of inventory necessary to satisfy a certain service level.

ANS: C PTS: 1

BUSPROG: Analytic LO: 7-7 Bloom’s: Comprehension Difficulty: Easy

When demand and delivery lead time are known and constant, daily demand = 8, purchase lead time = 5 days, and the purchase price = $20/unit, then the reorder point is:

a.	2
b.	13
c.	32.
d.	40.
e.	56.

ANS: D PTS: 1

BUSPROG: Analytic LO: 7-8 Bloom’s: Application Difficulty: Easy

When demand and delivery lead time are known and constant, the reorder point is the ____.

a.	demand during the delivery lead time
b.	safety stock
c.	demand during lead time + safety stock
d.	economic order quantity
e.	average inventory

ANS: A PTS: 1

BUSPROG: Analytic LO: 7-8 Bloom’s: Comprehension Difficulty: Easy

The College Bookstore sells a unique calculator to college students. The demand for this calculator has a normal distribution with an average daily demand of 20 units and a standard deviation of 4 units per day. The lead time for this calculator is 9 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Choose the closest answer.

a.	20 units
b.	80 units
c.	180 units
d.	200 units
e.	420 units

ANS: D PTS: 1

BUSPROG: Analytic LO: 7-8 Bloom’s: Application Difficulty: Moderate

The College Bookstore sells a unique calculator to college students. The demand for this calculator is constant at 20 units per day. The lead time for this calculator is variable at an average of 9 days with a standard deviation of 2 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Choose the closest answer.

a.	26 units
b.	46 units
c.	182 units
d.	226 units
e.	246 units

ANS: E PTS: 1

BUSPROG: Analytic LO: 7-8 Bloom’s: Application Difficulty: Moderate

Which of the following is true under the Periodic Review System?

a.	a lower level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system
b.	a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system
c.	it is more expensive to administer compared to the Continuous Review System
d.	the only uncertainty is the magnitude of demand during the delivery lead time
e.	there are no discrepancies between physical inventory and the stock record

ANS: B PTS: 1

BUSPROG: Analytic LO: 7-9 Bloom’s: Comprehension Difficulty: Easy

SHORT ANSWER

Briefly describe the differences between dependent and independent demand. Provide examples of dependent and independent demand items for each of the following industries: automotive, personal computer, bicycle

ANS:

a.	Dependent demand items are those parts whose demand is based on the demand of the final product in which the parts are used. Independent demand items are the demand for end items, and whose demand is affected by trends, seasonal patterns, and general market conditions.
b.	Automotive Industry:
	1.	Independent demand item - car/truck and service parts purchased by customers.
	2.	Dependent demand item - tires, axles, steering wheel, and battery used to assemble the automobiles.
c.	Personal Computer Industry:
	1.	Independent demand item - computer/laptop computer and hardware sold directly to consumers.
	2.	Dependent demand item - monitor, CPU, and keyboard used to assemble the PC.
d.	Bicycle Industry:
	1.	Independent demand item - bicycle and service oparts
	2.	Dependent demand item - tires, handlebars, chain, and seats used to assemble the bicycles.

PTS: 5

BUSPROG: Communication LO: 7-1 Bloom’s: Application Difficulty: Moderate

Name and briefly explain the four basic types of inventory.

ANS:

a.	Raw materials - unprocessed, purchased inventories.
b.	Work-in-process - partially processed inventories.
c.	Finished goods - inventory or materials that have been completely processed or assembled, ready for sales or shipping to customers.
d.	Maintenance, repair and operating (MRO) supplies - (e.g., lubrication) goods used to maintain, repair, or operate the manufacturing equipment, but do not become part of the finished goods.

PTS: 5

BUSPROG: Communication LO: 7-2 Bloom’s: Comprehension Difficulty: Moderate

List five of the assumptions of the EOQ model.

ANS:

a.	Demand must be known and constant
b.	Delivery time must be known and constant
c.	Replenishment is instantaneous
d.	Price is constant/quantity discounts are not allowed
e.	Holding cost is known and constant
f.	Ordering cost is known and constant
g.	Stockouts are not allowed

PTS: 5

BUSPROG: Communication LO: 7-6 Bloom’s: Knowledge Difficulty: Moderate

The manager at Robert’s Cigars wants to determine the lowest cost order policy given the following purchase discounts offered: cigar costs are $4 each for orders less than 500; $3.50 each for orders of 500 – 1000; and $3.25 each for orders greater than 1000. The order cost = $75, annual demand forecast = 5500 cigars, inventory carrying cost = 30% per year.

ANS:

Step 1

Determine the 3 EOQ’s—

For $4 cigars, EOQ = = 829 (infeasible, since EOQ > 500.

For $3.50 cigars, EOQ = = 886 (feasible range, since EOQ > 500 but < 1000.

For $3.25 cigars, EOQ = = 920 (infeasible, since EOQ < 1000, so must order 1001 to get the discount.

Step 2

Calculate the total annual inventory costs for the $3.50 and the $3.25 cigars:

TIC_3.50 = O+I+P = (75) + (.3)(3.50) + 5500(3.50) = $465.58 + $465.15 + $19,250 = $20,180.73

TIC_3.25 = O+I+P = (75) + (.3)(3.25) + 5500(3.25) = $412.09 + $487.99 + $17,875 = $18,775.08

So, the lowest cost order policy is to order 1001 cigars at a time, pay $3.25 per cigar, for a total inventory cost of $18,775.08

PTS: 5

BUSPROG: Communication LO: 7-7 Bloom’s: Analysis Difficulty: Difficult

ESSAY

Describe the ABC inventory matrix, and how is it used to manage inventory.

ANS:

An ABC inventory matrix is used to assist in identifying obsolete stocks and to analyze whether a company is stocking the correct inventories by comparing two ABC analyses. The vertical axis of the ABC inventory matrix shows the firm's inventory classification based on inventory usage whereas the horizontal axis shows the firm's inventory classification based on physical inventory.

Items appearing along the diagonal of the matrix suggest inventory matches sales. Items in the top left triangle indicate under-stocked A and B items, whereas items in the lower right triangle suggest overstocked B and C items, or obsolete stocks.

PTS: 10

BUSPROG: Communication LO: 7-4 Bloom’s: Application Difficulty: Difficult

What is Radio Frequency Identification (RFID)? Provide four examples or scenarios of how RFID can be used to aid in supply chain management.

ANS:

RFID aids in inventory management by making it easier to track inventories in the supply chains. It can synchronize information and physical flow of goods along supply chains from manufacturers to retail outlets and to the consumers. Moreover, it is also very useful for tracking returned goods through supply chains and to prevent counterfeits. For example,

a.	Materials management: As a supply vehicle enters the warehouse, the fixed-portal RFID reader positioned at the entrance reads the tags on the pallets or individual items to provide handling, routing, and storage information of the incoming goods, and inventory status can be updated automatically.

b.	Manufacturing: An RFID tag can be placed on the unit being produced so that specific customer configurations can be incorporated automatically during the production process. This is invaluable in a make-to-order environment.

c.	Distribution center: As the logistics vehicle arrives at the loading dock, the fixed-portal RFID reader communicates with the tag on the vehicle to confirm that it is approved to pick up goods. When the loaded vehicle leaves the dock and crosses the portal, the reader picks up the signals from the tags to alert the RFID software and ERP system to update the inventory automatically and initiate an advanced shipping notice (ASN), proof of pickup, and invoices.

d.	Retail store: As a delivery vehicle enters the unloading dock, the fixed-portal reader picks up the signals from the tags, and the RFID software application processes the signals to provide specific handling instructions and initiates automatic routing of the goods. An RFID reader can also be placed on the store shelf to trigger automatic replenishments when an item reaches its reorder point. Moreover, inventory status can be updated automatically in real time at any stage of the supply chain, and handheld readers can be used to assist in cycle counting.

PTS: 10

BUSPROG: Communication LO: 7-5 Bloom’s: Application Difficulty: Difficult

Use the graph below to answer the questions that follow.

a.	Identify the Annual Holding Cost curve. Provide a brief description of what the Annual Holding Cost curve represents.
b.	Identify the Annual Ordering Cost curve. Provide a brief description of what the Annual Ordering Cost curve represents.
c.	Identify the Annual Total Cost Curve. Provide a brief description of what the Annual Total Cost curve represents.
d.	Identify the Economic Order Quantity. Provide a brief description of what the Economic Order Quantity represents.

ANS:

a.	Identify the Annual Holding Cost curve. Provide a brief description of what the Annual Holding Cost curve represents.
	Curve K. Curve K represents the cost to a firm for holding inventory for an entire year. The larger the order size, the more inventory a firm holds, thus the higher the annual cost of holding inventory.

b.	Identify the Annual Ordering Cost curve. Provide a brief description of what the Annual Ordering Cost curve represents.
	Curve L. Curve L represents the cost to a firm for ordering inventory for an entire year. The larger the order size, the fewer the orders required to accumulate a year's worth of inventory, thus the lower the annual cost of ordering, and the higher the annual holding cost.

c.	Identify the Annual Total Cost Curve. Provide a brief description of what the Annual Total Cost curve represents.
	Curve J. Curve J is the sum of Curve K and Curve L. It begins very high as ordering costs are very high when order quantities are small, but as curve L and curve K near an intersection, the annual costs decrease. The intersection of K and L represents the lowest annual total cost, and thus reveals the EOQ. After K and L intersect, the annual total cost again begins to increase as order quantities increase causing holding costs to increase.

d.	Identify the Economic Order Quantity. Provide a brief description of what the Economic Order Quantity represents.
	The EOQ is the order size at which annual holding cost and annual ordering cost are equal, and where annual total cost is at its minimum. On this chart the EOQ is point G.

PTS: 10

BUSPROG: Communication LO: 7-6 Bloom’s: Analysis Difficulty: Difficult

hihi

Cite This work.

To export a reference to this article please select a referencing stye below.

Assignment Hippo (2021) . Retrive from http://www.assignmenthippo.com/sample-assignment/inventory-management

"." Assignment Hippo ,2021, http://www.assignmenthippo.com/sample-assignment/inventory-management

Assignment Hippo (2021) . Available from: http://www.assignmenthippo.com/sample-assignment/inventory-management

[Accessed 03/03/2021].

Assignment Hippo . ''(Assignment Hippo,2021) http://www.assignmenthippo.com/sample-assignment/inventory-management accessed 03/03/2021.

Want to order fresh copy of the Sample Template Answers? online or do you need the old solutions for Sample Template, contact our customer support or talk to us to get the answers of it.

+ Submit Your Assignment Here

AssignmentHippo Features

On Time Delivery

Our motto is deliver assignment on Time. Our Expert writers deliver quality assignments to the students.

Plagiarism Free Work

Get reliable and unique assignments by using our 100% plagiarism-free.

24 X 7 Live Help

Get connected 24*7 with our Live Chat support executives to receive instant solutions for your assignment.

Services For All Subjects

Get Help with all the subjects like: Programming, Accounting, Finance, Engineering, Law and Marketing.

Best Price Guarantee

Get premium service at a pocket-friendly rate at AssignmentHippo

FREE RESOURCES

FREE SAMPLE FILE

Client Review

I was struggling so hard to complete my marketing assignment on brand development when I decided to finally reach to the experts of this portal. They certainly deliver perfect consistency and the desired format. The content prepared by the experts of this platform was simply amazing. I definitely owe my grades to them.

11 Jan 2021
Alice

☆☆☆☆

Inventory Management

To View this free samples. Please enter your valid email id.

Cite This work.

+ Submit Your Assignment Here

AssignmentHippo Features

On Time Delivery

Plagiarism Free Work

24 X 7 Live Help

Services For All Subjects

Best Price Guarantee

FREE RESOURCES

FREE SAMPLE FILE

Client Review

Chat with Assignmenthippo.com

To View this free samples.
Please enter your valid email id.