MANAGING INVENTORY IN
SUPPLY CHAIN STRATEGIES,
COSTS, AND CLASSIFICATIONS
EXAM WITH COMPLETE
MANAGING INVENTORY IN SUPPLY CHAIN STRATEGIES,
COSTS, | Comprehensive Examination
MANAGING INVENTORY IN SUPPLY CHAIN
STRATEGIES, COSTS, AND CLASSIFICATIONS EXAM
WITH COMPLETE SOLUTIONS 100% VERIFIED!! actual
INTRODUCTION
This document is an important and very helpful preparation
resource for MANAGING INVENTORY IN SUPPLY CHAIN
STRATEGIES, COSTS, AND CLASSIFICATIONS EXAM
WITH COMPLETE SOLUTIONS 100% VERIFIED!!. Every
item uses a focused exam stem, four response options, a keyed
response, and a clear rationale, making it easier to understand
the subject, spot distractors, and build real exam confidence.
Page 1
, Question 1
A firm faces annual demand of 10,000 units, ordering cost of $50 per order,
and holding cost of $4 per unit per year. If the supplier offers a 2% price
discount on orders of 2,000 units or more, and the base unit price is $20, what
is the optimal order quantity under the all-units quantity discount schedule?
A. 500 units
B. 1,000 units
C. 2,000 units
D. 10,000 units
Correct Answer: C - 2,000 units
RATIONALE
The EOQ without discount is sqrt(2*10000*50/4)=500. For the
discount, evaluate total cost at Q=2000: ordering
cost=10000/2000*50=$250, holding cost=2000/2*4=$4000, purchase
cost=10000*20*0.98=$196,000, total=$200,250. At Q=500:
ordering=$1000, holding=$1000, purchase=$200,000, total=$202,000.
Since $200,250 < $202,000, the optimal is 2000 units. Options A and
B are EOQ values without considering discount, and D is not
cost-minimizing.
Question 2
Under a periodic review (R, S) policy with normally distributed demand during
the protection interval, which of the following most accurately describes the
impact of increasing the review period R while holding the fill rate constant?
A. Safety stock decreases because orders are placed less frequently.
B. Safety stock increases because the protection interval lengthens,
increasing demand uncertainty.
C. Safety stock remains unchanged because fill rate is constant.
D. Safety stock decreases because larger order quantities reduce ordering
frequency.
Page 2
,Correct Answer: B - Safety stock increases because the protection
interval lengthens, increasing demand uncertainty.
RATIONALE
In a periodic review system, the protection interval is R + L.
Increasing R increases the variance of demand over the protection
interval, which increases the required safety stock to maintain a given
fill rate. Thus safety stock increases, not decreases, and it does not
remain unchanged because fill rate depends on safety stock and
protection interval variability.
Question 3
In ABC inventory classification, which of the following criteria is most
appropriate for a firm with high demand variability and short product life
cycles?
A. Annual dollar volume
B. Unit cost
C. Lead time variability
D. Criticality and scarcity
Correct Answer: D - Criticality and scarcity
RATIONALE
For high variability and short life cycles, traditional ABC based on
annual dollar volume (A) may misclassify items. Criticality and
scarcity (D) better capture risk and strategic importance. Unit cost (B)
and lead time variability (C) are partial but not comprehensive for
dynamic environments.
Question 4
A company uses a continuous review (Q, R) policy. If lead time demand is
normally distributed with mean 100 and standard deviation 20, and the desired
cycle service level is 95% (z=1.645), what is the reorder point?
Page 3
, A. 100
B. 133
C. 120
D. 165
Correct Answer: B - 133
RATIONALE
Reorder point R = mean demand during lead time + z * standard
deviation = 100 + 1.645*20 = 100 + 32.9 133. Options A is mean
only, C is mean + 1 std dev, and D is mean + 3.25 std dev, not
matching z=1.645.
Question 5
Which of the following best explains why a firm might adopt a
vendor-managed inventory (VMI) program despite potential loss of control
over replenishment decisions?
A. VMI reduces the bullwhip effect by aligning incentives and improving
information sharing.
B. VMI increases the firm's inventory holding costs.
C. VMI eliminates the need for safety stock entirely.
D. VMI allows the firm to reduce order quantity discounts.
Correct Answer: A - VMI reduces the bullwhip effect by aligning
incentives and improving information sharing.
RATIONALE
VMI aligns incentives and improves information sharing, which
reduces demand amplification (bullwhip effect). B is incorrect because
VMI often reduces holding costs. C is false because safety stock is
still needed. D is not a primary benefit.
Page 4
SUPPLY CHAIN STRATEGIES,
COSTS, AND CLASSIFICATIONS
EXAM WITH COMPLETE
MANAGING INVENTORY IN SUPPLY CHAIN STRATEGIES,
COSTS, | Comprehensive Examination
MANAGING INVENTORY IN SUPPLY CHAIN
STRATEGIES, COSTS, AND CLASSIFICATIONS EXAM
WITH COMPLETE SOLUTIONS 100% VERIFIED!! actual
INTRODUCTION
This document is an important and very helpful preparation
resource for MANAGING INVENTORY IN SUPPLY CHAIN
STRATEGIES, COSTS, AND CLASSIFICATIONS EXAM
WITH COMPLETE SOLUTIONS 100% VERIFIED!!. Every
item uses a focused exam stem, four response options, a keyed
response, and a clear rationale, making it easier to understand
the subject, spot distractors, and build real exam confidence.
Page 1
, Question 1
A firm faces annual demand of 10,000 units, ordering cost of $50 per order,
and holding cost of $4 per unit per year. If the supplier offers a 2% price
discount on orders of 2,000 units or more, and the base unit price is $20, what
is the optimal order quantity under the all-units quantity discount schedule?
A. 500 units
B. 1,000 units
C. 2,000 units
D. 10,000 units
Correct Answer: C - 2,000 units
RATIONALE
The EOQ without discount is sqrt(2*10000*50/4)=500. For the
discount, evaluate total cost at Q=2000: ordering
cost=10000/2000*50=$250, holding cost=2000/2*4=$4000, purchase
cost=10000*20*0.98=$196,000, total=$200,250. At Q=500:
ordering=$1000, holding=$1000, purchase=$200,000, total=$202,000.
Since $200,250 < $202,000, the optimal is 2000 units. Options A and
B are EOQ values without considering discount, and D is not
cost-minimizing.
Question 2
Under a periodic review (R, S) policy with normally distributed demand during
the protection interval, which of the following most accurately describes the
impact of increasing the review period R while holding the fill rate constant?
A. Safety stock decreases because orders are placed less frequently.
B. Safety stock increases because the protection interval lengthens,
increasing demand uncertainty.
C. Safety stock remains unchanged because fill rate is constant.
D. Safety stock decreases because larger order quantities reduce ordering
frequency.
Page 2
,Correct Answer: B - Safety stock increases because the protection
interval lengthens, increasing demand uncertainty.
RATIONALE
In a periodic review system, the protection interval is R + L.
Increasing R increases the variance of demand over the protection
interval, which increases the required safety stock to maintain a given
fill rate. Thus safety stock increases, not decreases, and it does not
remain unchanged because fill rate depends on safety stock and
protection interval variability.
Question 3
In ABC inventory classification, which of the following criteria is most
appropriate for a firm with high demand variability and short product life
cycles?
A. Annual dollar volume
B. Unit cost
C. Lead time variability
D. Criticality and scarcity
Correct Answer: D - Criticality and scarcity
RATIONALE
For high variability and short life cycles, traditional ABC based on
annual dollar volume (A) may misclassify items. Criticality and
scarcity (D) better capture risk and strategic importance. Unit cost (B)
and lead time variability (C) are partial but not comprehensive for
dynamic environments.
Question 4
A company uses a continuous review (Q, R) policy. If lead time demand is
normally distributed with mean 100 and standard deviation 20, and the desired
cycle service level is 95% (z=1.645), what is the reorder point?
Page 3
, A. 100
B. 133
C. 120
D. 165
Correct Answer: B - 133
RATIONALE
Reorder point R = mean demand during lead time + z * standard
deviation = 100 + 1.645*20 = 100 + 32.9 133. Options A is mean
only, C is mean + 1 std dev, and D is mean + 3.25 std dev, not
matching z=1.645.
Question 5
Which of the following best explains why a firm might adopt a
vendor-managed inventory (VMI) program despite potential loss of control
over replenishment decisions?
A. VMI reduces the bullwhip effect by aligning incentives and improving
information sharing.
B. VMI increases the firm's inventory holding costs.
C. VMI eliminates the need for safety stock entirely.
D. VMI allows the firm to reduce order quantity discounts.
Correct Answer: A - VMI reduces the bullwhip effect by aligning
incentives and improving information sharing.
RATIONALE
VMI aligns incentives and improves information sharing, which
reduces demand amplification (bullwhip effect). B is incorrect because
VMI often reduces holding costs. C is false because safety stock is
still needed. D is not a primary benefit.
Page 4
