Operations Management Quiz #9

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Question 1 (1 point)

Question 1 Unsaved

A continuous review system is sometimes called a fixed interval reorder system.

Question 1 options:

	True
	False

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Question 2 (1 point)

Which one of the following statements is best?

Question 2 options:

	The level of safety stock maintained decreases when the desired cycle-service level increases.
	The level of safety stock maintained decreases when the standard deviation of demand during lead-time increases.
	When no safety stock is maintained, stockouts will occur during approximately 50% of the cycles.
	The level of safety stock maintained is greater if mean absolute deviation (MAD) is used rather than standard deviation in estimating forecast errors.

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Question 3 (1 point)

If on-hand inventory = 100 units, scheduled receipts = 100 units and backorders = 100 units, the Inventory Position (IP) is 100 units.

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	True
	False

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Question 4 (1 point)

The scheduled receipts are orders that have been placed but not yet received.

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	True
	False

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Question 5 (1 point)

A periodic review system is a system in which an item's inventory position is reviewed periodically rather than continuously.

Question 5 options:

	True
	False

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Question 6 (1 point)

An inventory system answers two important questions: when to order and how much to order. Which of the following statements correctly explains how a Q system (continuous review system) or a P system (periodic review system) answers these questions?

Question 6 options:

	Under a Q system, a fixed quantity is ordered every P time period.
	Under a Q system, an order is placed to replenish the inventory position up to the target level T when the inventory position reaches the reorder point R.
	Under a P system, a fixed quantity Q is ordered when the inventory position reaches the reorder point R.
	Under a P system, an order is placed to replenish the inventory position up to the target level T every P time periods.

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Question 7 (1 point)

Which one of the following statements represents an advantage of the P system over the Q system?

Question 7 options:

	Less safety stock is carried to achieve the same service level.
	The replenishment intervals can be more easily individualized for items.
	Orders can be more easily combined to the same supplier.
	A P system is more suitable for quantity discounts and capacity limitations.

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Question 8 (1 point)

Which one of the following statements represents an advantage of a Q system over the P system?

Question 8 options:

	A perpetual inventory system is not mandatory.
	Orders for multiple items from the same supplier can be combined more easily.
	Fixed replenishment intervals are possible, which can be, administratively, quite convenient.
	The Q system is more suited for quantity discounts and physical limitations.

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Question 9 (1 point)

Which one of the following statements about inventory control systems is best?

Question 9 options:

	A single-bin system is essentially a P system, with the target inventory and current inventory position established visually.
	A base-stock system minimizes ordering and setup costs by placing orders more infrequently.
	The base-stock system is mostly used for inexpensive items because it maximizes cycle inventory costs.
	Visual systems are intended for use with high-value items, such as jet engines, that don't experience a steady demand.

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Question 10 (1 point)

If on-hand inventory = 100 units, scheduled receipts = 100 units and backorders = 100 units, the Inventory Position (IP) is the sum of the three, or 300 units.

Question 10 options:

	True
	False

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Question 11 (1 point)

Which one of the following descriptions best defines the cycle-service level as a measure of customer service?

Question 11 options:

	the preferred proportion of annual demand instantaneously filled from stock
	the number of stockouts tolerated per year
	the preferred proportion of days in the year when an item is in stock
	the desired probability of not running out of stock in any one inventory cycle

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Question 12 (1 point)

As the service level increases, the probability of not running out of stock during a cycle decreases.

Question 12 options:

	True
	False

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Question 13 (1 point)

The two-bin inventory system is a type of visual system.

Question 13 options:

	True
	False

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Question 14 (1 point)

A continuous review system is sometimes called a reorder point system.

Question 14 options:

	True
	False

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Question 15 (1 point)

Which one of the following statements is best?

Question 15 options:

	A P system requires more safety stock than a Q system.
	A P system lends itself more to quantity discounts than does a Q system.
	A P system requires more administrative control and computer support than does a Q system.
	In a periodic review system, the value of Q is kept the same from one cycle to another.

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Question 16 (2 points)

Scenario 9.6 A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead-time for the item is six weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. A normal distribution table is appended to this exam. Use the information in Scenario 9.6. What is the economic order quantity (EOQ) for this item?

Question 16 options:

	less than or equal to 175 units
	greater than 175 units but less than or equal to 200 units
	greater than 200 units but less than or equal to 225 units
	greater than 225 units

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Question 17 (2 points)

Scenario 9.7 You are the operations manager of a firm that uses the continuous-review inventory control system. Suppose the firm operates 52 weeks a year, 365 days, and has the following characteristics for its primary item: Demand = 25,000 units/year Ordering cost = $30/order Holding cost = $8/unit/year Lead time = 2 weeks Standard deviation in weekly demand = 100 units A normal distribution table is appended to this exam. Use the information in Scenario 9.7. What is the annual cost of holding safety stock for this item if they use a 90% service level?

Question 17 options:

	less than or equal to $1,500
	greater than $1,500 but less than or equal to $1,550
	greater than $1,550 but less than or equal to $1,600
	greater than $1,600

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Question 18 (2 points)

Question 18 options:

	less than or equal to 50 units
	greater than 50 but less than or equal to 100 units
	greater than 100 but less than or equal to 150 units
	greater than 150 units

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Question 19 (2 points)

Jan Tuttle is the inventory manager of an art supply store. She uses a periodic review system for all oil paints. The number of periods between orders (P) for red #68 is 15 workdays. (The store operates 50 weeks per year, five workdays per week.) Additional information concerning red #68 follows. Demand = 30 units/workday Standard deviation of daily demand = 4 units/workday Lead-time = 7 workdays Desired cycle-service level = 85% A normal distribution table is appended to this exam. What is the target inventory level T for red #68?

Question 19 options:

	less than or equal to 550 units
	greater than 550 but less than or equal to 600 units
	greater than 600 but less than or equal to 650 units
	greater than 650 units

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Question 20 (2 points)

Scenario 9.5 Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam. Use the information in Scenario 9.5. What service level does a reorder point of 1,524 imply?

Question 20 options:

	less than or equal to 50%
	greater than 50% but less than or equal to 55%
	greater than 55% but less than or equal to 60%
	greater than 60%