practice questions for chapter 11 PDF

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Introduction to Operations and Supply Chain Management, 4e (Bozarth/Handfield) Chapter 11 Managing Inventory throughout the Supply Chain Learning Objective 11-1 1) Cycle stock can occur at more than one point in a supply chain. Answer: TRUE Diff: 1 Reference: The Role of Inventory Keywords: cycle stock, supply chain AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 2) Companies do not plan to use safety stock. Answer: TRUE Diff: 1 Reference: The Role of Inventory Keywords: safety stock AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 3) Dependent demand inventory never needs to hold hedge inventory. Answer: FALSE Diff: 1 Reference: The Role of Inventory Keywords: hedge inventory, dependent demand AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 4) The inventory that companies hold to protect themselves against uncertainties in either demand or replenishment time is called: A) safety stock. B) anticipation inventory. C) hedge inventory. D) smoothing inventory. Answer: A Diff: 1 Reference: The Role of Inventory Keywords: safety stock, inventory AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand.

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5) Individual links in the supply chain can stabilize their production at the most efficient level by using: A) safety stock. B) anticipation inventory. C) linkage inventory D) smoothing inventory. Answer: D Diff: 2 Reference: The Role of Inventory Keywords: smoothing inventory AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 6) Inventory that is "in the pipeline" moving from one link to another is: A) anticipation inventory. B) transportation inventory. C) smoothing inventory. D) hedge inventory. Answer: B Diff: 1 Reference: The Role of Inventory Keywords: transportation inventory AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 7) The mismatch between timing of customer demand and supply chain lead times is what drives the need for: A) safety stock. B) anticipation inventory. C) cycle stock. D) hedge inventory. Answer: B Diff: 2 Reference: The Role of Inventory Keywords: anticipation inventory AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand.

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8) Tata Motors assembles cars from their own parts and subassemblies and also controls the mining and fabrication of the materials used to create those parts. When Anand ordered his luxury sedan with the platinum dashboard he knew he wouldn't be taking delivery of his dream car the next week. Rather, he would be waiting a while thanks to: A) a mismatch between supply chain lead time and customer demand. B) a mismatch between overall demand levels and productive capacity. C) a mismatch between demand and the most efficient production volume. D) a mismatch between demand and the most efficient shipment volume. Answer: A Diff: 1 Reference: The Role of Inventory Keywords: mismatch AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 9) Which of the following relationships shows dependent demand inventory? A) A business purchases a new car when the old one wears out. B) A tire maker buys cleaning supplies. C) An automaker purchases four tires for each car they produce. D) A winemaker buys grapes from farmers in the Columbia Valley. Answer: C Diff: 2 Reference: The Role of Inventory Keywords: dependent demand, inventory AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 10) Gordon went to the grocery store and bought a bag of carrots. He needed only three for his cottage pie recipe, but they came twelve to a bag so he diced three and tossed the rest in the crisper compartment of his stainless steel refrigerator. As he screamed his insults at his children they reminded themselves that he wasn't upset with them, rather he was concerned about the high level of ________ stock he was holding. Answer: cycle Diff: 3 Reference: The Role of Inventory Keywords: cycle stock, supply chain AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand.

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11) Extra inventory that is held to protect against uncertainties in either demand or lead time is called ________. Answer: safety stock Diff: 1 Reference: The Role of Inventory Keywords: safety stock, inventory AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 12) Inventory items with demand levels that are beyond an organization's complete control are termed ________. Answer: independent demand Diff: 1 Reference: The Role of Inventory Keywords: inventory, independent demand AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 13) Describe any four types of inventory and the drivers that spur their need. Answer: Answers will vary depending on the types chosen. The inventory types discussed in the text are cycle stock, safety stock, anticipation inventory, hedge inventory, transportation inventory, and smoothing inventory. Cycle stock is components or products that are received in bulk by a downstream partner, gradually used up, and then replenished again in bulk by the upstream partner. The driver for cycle stock is a mismatch between downstream partner's demand and most efficient production or shipment volumes for upstream partner. Safety stock is extra inventory that companies hold to protect themselves against uncertainties in either demand or replenishment time. The safety stock driver is uncertainty in supply or demand. Anticipation inventory is held in anticipation of customer demand and is driven by a mismatch between timing of customer demand and supply chain lead times. Hedge inventory is a form of inventory buildup to buffer against some event that may not happen and is driven by uncertainty in supply or demand. Transportation inventory is inventory that is moving from one link in the supply chain to another. This is driven by a mismatch between timing of customer demand and supply chain lead times. Smoothing inventories are inventories used to smooth out differences between upstream production levels and downstream demand. Smoothing inventories are driven by a mismatch between downstream demand levels and upstream production capacity. Diff: 2 Reference: The Role of Inventory Keywords: cycle stock, safety stock, anticipation inventory, hedge inventory, transportation inventory, smoothing inventory AACSB: Application of Knowledge LO: 11.1: Describe the various roles of inventory, including the different types of inventory and inventory drivers, and distinguish between independent demand and dependent demand. 4 Copyright © 2016 Pearson Education, Inc.

Learning Objective 11-2 1) The order quantity in a periodic review system rises as the on-hand inventory falls. Answer: TRUE Diff: 1 Reference: Periodic Review Systems Keywords: order quantity, periodic review, inventory AACSB: Application of Knowledge LO: 11.2: Calculate the restocking level for a periodic review system 2) The restocking level increases as the service level falls. Answer: FALSE Diff: 2 Reference: Periodic Review Systems Keywords: reorder point, service level AACSB: Application of Knowledge LO: 11.2: Calculate the restocking level for a periodic review system 3) The beef jerky driver shows up every Monday to take orders from his convenience store customers. One fine Monday morning he stops in the Quik-E Mart and notes that there are only three sticks on the shelves. Consulting his route sheet, he discovers that the restocking level is 40. The order quantity is therefore: A) 3 sticks. B) 37 sticks. C) 40 sticks. D) Cannot be determined with the information given. Answer: B Diff: 1 Reference: Periodic Review Systems Keywords: periodic review, order quantity, restocking level AACSB: Analytical Thinking LO: 11.2: Calculate the restocking level for a periodic review system 4) In a periodic review system, if the average demand increases by 100%, the restocking level is: A) increased by 200%. B) decreased by 100%. C) decreased by 50%. D) increased by 40%. Answer: B Diff: 3 Reference: Periodic Review Systems Keywords: restocking level, safety stock, periodic review AACSB: Analytical Thinking LO: 11.2: Calculate the restocking level for a periodic review system

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5) In a periodic review system, if the average demand increases by 100%, the safety stock level is: A) increased by 200%. B) increased by 100%. C) decreased by 50%. D) increased by 40%. Answer: B Diff: 3 Reference: Periodic Review Systems Keywords: restocking level, safety stock, periodic review AACSB: Analytical Thinking LO: 11.2: Calculate the restocking level for a periodic review system 6) A hospital's biomedical repair shop uses a 4-week periodic system to maintain the inventory on the blood pressure cuff repair parts. They use an average 40 adult arm cuffs with a standard deviation of 6 cuffs every 4 weeks. Cuffs aren't the most critical item they carry, but the manager would like to avoid the embarrassment of a stockout at least 95% of the time. What should their restocking level be? A) 40 cuffs B) 46 cuffs C) 50 cuffs D) 52 cuffs Answer: C Diff: 2 Reference: Periodic Review Systems Keywords: periodic review, restocking level AACSB: Analytical Thinking LO: 11.2: Calculate the restocking level for a periodic review system Learning Objective 11-3 1) A company that orders at their economic order quantity has an annual ordering cost that is half of their total cost. Answer: TRUE Diff: 2 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, ordering cost, continuous review AACSB: Application of Knowledge LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available.

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2) In order for the economic order quantity model to work, demand must be known and constant. Answer: TRUE Diff: 2 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, continuous review AACSB: Application of Knowledge LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available. 3) Decreases in the standard deviation of demand reduce the amount of safety stock that should be held. Answer: TRUE Diff: 2 Reference: Continuous Review Systems Keywords: demand, safety stock, standard deviation, continuous review AACSB: Application of Knowledge LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available. 4) In order to find the lowest cost ordering policy in a quantity discount model, you must compare the holding cost, ordering cost, and the price per unit for various order quantities. Answer: TRUE Diff: 2 Reference: Continuous Review Systems Keywords: demand, EOQ, economic order quantity, quantity discount AACSB: Application of Knowledge LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available. 5) Which of these conditions is NOT necessary for the economic order quantity model to be valid? A) The item has a constant demand. B) The item has a constant lead time. C) The item has a constant price. D) The item has a constant safety stock. Answer: D Diff: 2 Reference: Continuous Review Systems Keywords: continuous review, EOQ, economic order quantity AACSB: Application of Knowledge LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available. 7 Copyright © 2016 Pearson Education, Inc.

6) The cashier waved the can of golden hominy across the holographic bar code reader and it emitted a piercing beep. At the same time the customer's bill was rising, the grocery store's inventory was automatically being reduced by 1 can of golden hominy down to 3 cans. This was the bare minimum amount of hominy the store manager dared carry in inventory, so the computer system automatically sent a message to the hominy man, who loaded a few cases onto his delivery truck for tomorrow morning's trip to replenish the store. This is a classic example of: A) a periodic review system. B) safety stock. C) a continuous review system. D) cycle stock. Answer: C Diff: 1 Reference: Continuous Review Systems Keywords: inventory replenishment, hominy, continuous review AACSB: Application of Knowledge LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available. 7) If annual demand increases by 100%, the average inventory held in a system governed by the EOQ model is: A) increased 100%. B) decreased by 100%. C) decreased by 50%. D) increased by 40%. Answer: D Diff: 2 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, continuous review AACSB: Analytical Thinking LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available.

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8) A law firm always orders 50 cases of paper from their office supply company. They incur an annual holding cost of $15 per case and have an ordering cost of $25 each time they place an order. If their annual demand is 480 cases, how much could they save annually by switching to their economic order quantity? A) $15 B) $25 C) $40 D) $80 Answer: A Diff: 3 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, total cost, continuous review AACSB: Analytical Thinking LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available. 9) The campus bookstore sells 4,000 sets of graduation regalia each year. Placing an order from their supplier costs $25 regardless of order quantity, so they usually place a large order (a half year's supply) at a time. It costs $5 per year to hold a cap and gown in inventory, primarily insurance costs for the highly flammable material. What is their optimal order quantity? A) 150 B) 200 C) 1,000 D) 2,000 Answer: B Diff: 2 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, continuous review AACSB: Analytical Thinking LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available.

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10) The campus bookstore sells 4,000 sets of graduation regalia each year. Placing an order from their supplier costs $25 regardless of order quantity, so they usually place a large order (a half year's supply) at a time. It costs $5 per year to hold a cap and gown in inventory, primarily insurance costs for the highly flammable material. What is the total cost if they order at their optimal order quantity? A) $1,650 B) $1,500 C) $1,000 D) $2,000 Answer: C Diff: 3 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, continuous review, total cost AACSB: Analytical Thinking LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available. 11) The campus bookstore sells 4,000 sets of graduation regalia each year. Placing an order from their supplier costs $25 regardless of order quantity, so they usually place a large order (a half year's supply) at a time. It costs $5 per year to hold a cap and gown in inventory, primarily insurance costs for the highly flammable material. What is the difference in the total cost if they order at their optimal order quantity compared to their current policy? A) $4,550 B) $5,050 C) $3,550 D) $4,050 Answer: D Diff: 3 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, continuous review, total cost AACSB: Analytical Thinking LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available.

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12) The campus bookstore sells 4,000 sets of graduation regalia each year. Placing an order from their supplier costs $25 regardless of order quantity, so they usually place a large order (a half year's supply) at a time. It costs $5 per year to hold a cap and gown in inventory, primarily insurance costs for the highly flammable material. What is the difference in their holding cost if they order at their optimal order quantity compared to their current policy? A) $4,500 B) $4,400 C) $4,200 D) $4,000 Answer: A Diff: 3 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, continuous review, total cost AACSB: Analytical Thinking LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available. 13) A manufacturer replenishes their packaging materials according to the economic order quantity model. They use 25,000 cases of packaging materials per year and order 500 cases at a time. Their cost to carry a case in inventory for a year is $12. How much does it cost them to place an order with their supplier? A) $12 B) $60 C) $720 D) $5 Answer: B Diff: 2 Reference: Continuous Review Systems Keywords: EOQ, economic order quantity, order cost, continuous review AACSB: Analytical Thinking LO: 11.3: Calculate the economic order quantity (EOQ) and reorder point (ROP) for a continuous review system, and determine the best order quantity when volume discounts are available.

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14) Which of these conditions is likely to cause a decrease in the probability of a stockout? A) higher lead time variance B) lower lead time C) higher demand level variance D) lower service level Answer: B Diff: 2 Reference: Continuous Review Systems Keywords: ROP, reorder point, variance, continuous review AACSB: An...