OMGT Test 3 Study Guide | Operations Management Exam Review, Practice
Questions & Key Concepts
Tata Motors assembles cars from their own parts and sub-assemblies and also controls the
mining and fabrication of materials used to create those parts. When Anand ordered their
luxury sedan with 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: - ✔✔D) a mismatch between
supply chain lead time and customer demand.
Which of the following relationships shows dependent demand inventory? - ✔✔A) An
automaker purchases four tires for each car they produce
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 the restock level is 40. The
order quantity is therefore: - ✔✔B) 37 sticks
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? - ✔✔D) 50 Cuffs
The inventory that companies hold to protect themselves against uncertainties in either
demand or replenishment time is called: - ✔✔A) Safety Stock
Individual links in the supply chain can stabilize their production at the most efficient level by
using: - ✔✔A) Smoothing Inventory
Inventory that is "in the pipeline" is: - ✔✔B) Transportation Inventory
,Which of these conditions is likely to cause a decrease in the profitability of a stockout? -
✔✔B) Lower lead time
Safety stock increases when: - ✔✔B) Average demand increases
The mismatch between timing of customer demand and supply chain lead times is what drives
the need for: - ✔✔B) Anticipation Inventory
Which of these conditions is NOT necessary for the economic quantity model to be valid? -
✔✔D) The item has a constant safety stock
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: - ✔✔C) a continuous review system
If demand increases by 100%, the average inventory held in a system governed by the EOQ
model: - ✔✔D) is increased by 40%
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
A manufacturer replenishes their packaging materials according to the economic 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? - ✔✔D) $60
, A local barbecue joint makes one massive batch of potato salad each day. If they run out of this
savory side before the end of the day, their last few customers are less than satisfied, but if they
make too much, they sell it to the local hog farmer for feed. Every serving costs an equivalent of
$0.23 to make, but can be sold for $1.50 to customers and for $0.08 to the hog farmer. The
average daily demand is for 200 servings with a standard deviation of 20 servings. How many
servings should be made each day? - ✔✔B) 225
The factory produces product and ships it to the distributor. The distributor sends it to the
wholesaler when they receive an order. The wholesaler ships the product to the retailer as the
retailer requests replenishment. The customer visits the retailer's bricks and mortar store to
purchase the product when they run out. Which of these supply chain members is most likely
subjected to the greatest variability in customer demand? - ✔✔A) Factory
Supply chain inventory: - ✔✔A) increases in cost as materials move downstream
A university orders all office supplies, including red grading pens, out of a catalog from the same
supplier. Conservative estimates of the demand for these red pens are 12,000 pens per year.
There is a $25 charge for placing an order and the university has a $10 annual cost for holding
these pens. Prices for the pens are based on the quantity purchased, so if less than 100 are
ordered, the unit price is $2.50, if 100 to 299 are ordered, the unit price is $2.40, if 300 to 499
are ordered, the unit price is $2.30, and if 500 or more are ordered, the unit price is $2.20.
What order quantity will result in the lowest total annual cost to the university? - ✔✔D) 500
The food engineers at Moria Foods have developed a new variety of banana they have named
the "mayfly banana" which holds perfect ripeness for exactly one day before becoming a black-
skinned sack of putrid mush. Which of these actions will result in a lower order quantity from
the many retail establishments clamoring to stock up on this new foodstuff? - ✔✔C) a
decrease in the salvage value of the Mayfly bananas
Order quantity decisions are typically made in concert with the considerations of
transportation, packaging and material handling. - ✔✔TRUE
Questions & Key Concepts
Tata Motors assembles cars from their own parts and sub-assemblies and also controls the
mining and fabrication of materials used to create those parts. When Anand ordered their
luxury sedan with 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: - ✔✔D) a mismatch between
supply chain lead time and customer demand.
Which of the following relationships shows dependent demand inventory? - ✔✔A) An
automaker purchases four tires for each car they produce
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 the restock level is 40. The
order quantity is therefore: - ✔✔B) 37 sticks
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? - ✔✔D) 50 Cuffs
The inventory that companies hold to protect themselves against uncertainties in either
demand or replenishment time is called: - ✔✔A) Safety Stock
Individual links in the supply chain can stabilize their production at the most efficient level by
using: - ✔✔A) Smoothing Inventory
Inventory that is "in the pipeline" is: - ✔✔B) Transportation Inventory
,Which of these conditions is likely to cause a decrease in the profitability of a stockout? -
✔✔B) Lower lead time
Safety stock increases when: - ✔✔B) Average demand increases
The mismatch between timing of customer demand and supply chain lead times is what drives
the need for: - ✔✔B) Anticipation Inventory
Which of these conditions is NOT necessary for the economic quantity model to be valid? -
✔✔D) The item has a constant safety stock
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: - ✔✔C) a continuous review system
If demand increases by 100%, the average inventory held in a system governed by the EOQ
model: - ✔✔D) is increased by 40%
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
A manufacturer replenishes their packaging materials according to the economic 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? - ✔✔D) $60
, A local barbecue joint makes one massive batch of potato salad each day. If they run out of this
savory side before the end of the day, their last few customers are less than satisfied, but if they
make too much, they sell it to the local hog farmer for feed. Every serving costs an equivalent of
$0.23 to make, but can be sold for $1.50 to customers and for $0.08 to the hog farmer. The
average daily demand is for 200 servings with a standard deviation of 20 servings. How many
servings should be made each day? - ✔✔B) 225
The factory produces product and ships it to the distributor. The distributor sends it to the
wholesaler when they receive an order. The wholesaler ships the product to the retailer as the
retailer requests replenishment. The customer visits the retailer's bricks and mortar store to
purchase the product when they run out. Which of these supply chain members is most likely
subjected to the greatest variability in customer demand? - ✔✔A) Factory
Supply chain inventory: - ✔✔A) increases in cost as materials move downstream
A university orders all office supplies, including red grading pens, out of a catalog from the same
supplier. Conservative estimates of the demand for these red pens are 12,000 pens per year.
There is a $25 charge for placing an order and the university has a $10 annual cost for holding
these pens. Prices for the pens are based on the quantity purchased, so if less than 100 are
ordered, the unit price is $2.50, if 100 to 299 are ordered, the unit price is $2.40, if 300 to 499
are ordered, the unit price is $2.30, and if 500 or more are ordered, the unit price is $2.20.
What order quantity will result in the lowest total annual cost to the university? - ✔✔D) 500
The food engineers at Moria Foods have developed a new variety of banana they have named
the "mayfly banana" which holds perfect ripeness for exactly one day before becoming a black-
skinned sack of putrid mush. Which of these actions will result in a lower order quantity from
the many retail establishments clamoring to stock up on this new foodstuff? - ✔✔C) a
decrease in the salvage value of the Mayfly bananas
Order quantity decisions are typically made in concert with the considerations of
transportation, packaging and material handling. - ✔✔TRUE
