ACBS 400B EXAM 3 PRACTICE QUESTIONS
AND DETAILED SOLUTIONS
◉ A-B-C approach classification system.
Answer: Classifying inventory according to some measure of
importance, and allocating control efforts accordingly
◉ A items (ABC).
Answer: very important, 10-20% of the number of items in the
inventory, and about 60-70% of the annual dollar value
◉ B items (ABC).
Answer: moderatley important
◉ C items (ABC).
Answer: 50-60% of the number of items in inventory but only 10-
15% of the annual dollar value
◉ How to do ABC classification.
Answer: 1. For each item, multiply annual volume by unit price to
get annual dollar value
2. arrange annual values in descending order
,◉ in an A-B-C system, C items typically represent about this
percentage of items:.
Answer: 50%
◉ Periodic System.
Answer: physical count of items in inventory made at periodic
intervals. many items ordered at the same time; savings in
processing and shipping of orders
◉ perpetual inventory system.
Answer: System that keeps track of removals from inventory
continuously, thus monitoring current levels of each item.
continuous control; can optimize Q and place orders when inventory
drops to a predetermined minimum level
◉ periodic system cons.
Answer: lack of control between reviews; having to keep extra stock
to protect against shortages
◉ perpetual inventory system cons.
Answer: added cost of record keeping; usually has to be
accompanied by a periodic physical count
, ◉ when is the best time to embed the RFID tag in the good?.
Answer: assembly
◉ Economic Order Quantity models.
Answer: identify the optimal order quantity by minimizing the sum
of annual costs that vary with order size and frequency
◉ re-order point.
Answer: when the quantity on hand of an item drops to this amount
(quantity-trigger), the item is reordered
◉ what does Economic Order Quantity (EOQ) solve.
Answer: how much to order
◉ holding (carrying) costs.
Answer: cost to carry an item in inventory for a length of time,
usually a year
◉ ordering costs (setup costs).
Answer: the costs involved in placing an order or preparing
equipment for a job
◉ what is not a component of holding costs?.
AND DETAILED SOLUTIONS
◉ A-B-C approach classification system.
Answer: Classifying inventory according to some measure of
importance, and allocating control efforts accordingly
◉ A items (ABC).
Answer: very important, 10-20% of the number of items in the
inventory, and about 60-70% of the annual dollar value
◉ B items (ABC).
Answer: moderatley important
◉ C items (ABC).
Answer: 50-60% of the number of items in inventory but only 10-
15% of the annual dollar value
◉ How to do ABC classification.
Answer: 1. For each item, multiply annual volume by unit price to
get annual dollar value
2. arrange annual values in descending order
,◉ in an A-B-C system, C items typically represent about this
percentage of items:.
Answer: 50%
◉ Periodic System.
Answer: physical count of items in inventory made at periodic
intervals. many items ordered at the same time; savings in
processing and shipping of orders
◉ perpetual inventory system.
Answer: System that keeps track of removals from inventory
continuously, thus monitoring current levels of each item.
continuous control; can optimize Q and place orders when inventory
drops to a predetermined minimum level
◉ periodic system cons.
Answer: lack of control between reviews; having to keep extra stock
to protect against shortages
◉ perpetual inventory system cons.
Answer: added cost of record keeping; usually has to be
accompanied by a periodic physical count
, ◉ when is the best time to embed the RFID tag in the good?.
Answer: assembly
◉ Economic Order Quantity models.
Answer: identify the optimal order quantity by minimizing the sum
of annual costs that vary with order size and frequency
◉ re-order point.
Answer: when the quantity on hand of an item drops to this amount
(quantity-trigger), the item is reordered
◉ what does Economic Order Quantity (EOQ) solve.
Answer: how much to order
◉ holding (carrying) costs.
Answer: cost to carry an item in inventory for a length of time,
usually a year
◉ ordering costs (setup costs).
Answer: the costs involved in placing an order or preparing
equipment for a job
◉ what is not a component of holding costs?.
