OBA 335: Chapter 9 - Inventory
Management Exam Questions with
Correct Answers
dependent demand items - ANSWER-items whose required quantity varies with the
production plans for other items held in the firm's inventory
cycle inventory - ANSWER-the portion of total inventory that varies directly with lot
size
average cycle inventory formula - ANSWER-lot size: Q
safety stock inventory - ANSWER-surplus inventory that a company holds to protect
against uncertainties in demand, lead time, and supply changes
anticipation inventory - ANSWER-inventory used to absorb uneven rates of demand
or supply
Pipeline Inventory - ANSWER-inventory that is created when an order for an item is
issued but not yet received
pipeline inventory formula - ANSWER-
what is the primary lever to reduce cycle inventory? - ANSWER-reduce the lot sizes
of items moving in the supply chain
repeatability - ANSWER-the degree to which the same work can be done again
what is the primary lever to reduce safety stock inventory? - ANSWER-place orders
closer to the time when they must be received.
what is the primary lever to reduce anticipation inventory? - ANSWER-to match
demand rate with production rate
an operations manager has direct control over lead times but not what? - ANSWER-
demand rates.
stock-keeping unit (SKU) - ANSWER-an individual item or product that has an
identifying code and is held in inventory somewhere along the supply chain
What is cycle counting? - ANSWER-An inventory control method where storeroom
personnel physically count a small percentage of items each day
What is the purpose of cycle counting? - ANSWER-To correct errors found in the
inventory during the counting process
, economic order quantity (EOQ) - ANSWER-the lot size that minimizes total annual
inventory holding and ordering costs
do not use the EOQ if: - ANSWER--if you use the "make-to-order" strategy and your
customer specifies that the entire order be delivered in one shipment
-If the order size is constrained by capacity limitations such as the size of the firm's
ovens, amount of testing equipment, or number of delivery trucks
modify the EOQ if: - ANSWER-- If significant discounts are given for ordering large
quantities
- if replenishment of the inventory is not instantaneous
use the EOQ if: - ANSWER--if you follow a "make-to-stock" strategy and the item
has relatively stable demand
-if your carrying costs per unit and setup or ordering costs are known and relatively
stable
cycle inventory levels chart - ANSWER-
annual holding cost = - ANSWER-Average cycle inventory x Unit holding cost
annual ordering cost = - ANSWER-Number of Orders/Year x Ordering or setup Cost
annual holding, ordering, and total cost graph - ANSWER-
Total annual cycle inventory cost = - ANSWER-C= total annual cycle investory cost
Q= lot size in units
H= cost of holding one unit in inventory for a year
D= annual demand
S= cost of ordering or setting up one lot in dollars per lot
EOQ formula - ANSWER-
time between orders (TBO) - ANSWER-the average elapsed time between receiving
(or placing) replenishment orders of Q units for a particular lot size
TBO of EOQ formula - ANSWER-
if demand goes up what happens to EOQ? - ANSWER-it goes up
if order/set up costs go down what happens to EOQ? - ANSWER-it goes down
if holding costs go down what happens to EOQ? - ANSWER-it goes up
continuous review (Q) system aka reorder point (ROP) system - ANSWER-a system
designed to track the remaining inventory of a SKU each time a withdrawal is made
to determine whether it is time to reorder
Management Exam Questions with
Correct Answers
dependent demand items - ANSWER-items whose required quantity varies with the
production plans for other items held in the firm's inventory
cycle inventory - ANSWER-the portion of total inventory that varies directly with lot
size
average cycle inventory formula - ANSWER-lot size: Q
safety stock inventory - ANSWER-surplus inventory that a company holds to protect
against uncertainties in demand, lead time, and supply changes
anticipation inventory - ANSWER-inventory used to absorb uneven rates of demand
or supply
Pipeline Inventory - ANSWER-inventory that is created when an order for an item is
issued but not yet received
pipeline inventory formula - ANSWER-
what is the primary lever to reduce cycle inventory? - ANSWER-reduce the lot sizes
of items moving in the supply chain
repeatability - ANSWER-the degree to which the same work can be done again
what is the primary lever to reduce safety stock inventory? - ANSWER-place orders
closer to the time when they must be received.
what is the primary lever to reduce anticipation inventory? - ANSWER-to match
demand rate with production rate
an operations manager has direct control over lead times but not what? - ANSWER-
demand rates.
stock-keeping unit (SKU) - ANSWER-an individual item or product that has an
identifying code and is held in inventory somewhere along the supply chain
What is cycle counting? - ANSWER-An inventory control method where storeroom
personnel physically count a small percentage of items each day
What is the purpose of cycle counting? - ANSWER-To correct errors found in the
inventory during the counting process
, economic order quantity (EOQ) - ANSWER-the lot size that minimizes total annual
inventory holding and ordering costs
do not use the EOQ if: - ANSWER--if you use the "make-to-order" strategy and your
customer specifies that the entire order be delivered in one shipment
-If the order size is constrained by capacity limitations such as the size of the firm's
ovens, amount of testing equipment, or number of delivery trucks
modify the EOQ if: - ANSWER-- If significant discounts are given for ordering large
quantities
- if replenishment of the inventory is not instantaneous
use the EOQ if: - ANSWER--if you follow a "make-to-stock" strategy and the item
has relatively stable demand
-if your carrying costs per unit and setup or ordering costs are known and relatively
stable
cycle inventory levels chart - ANSWER-
annual holding cost = - ANSWER-Average cycle inventory x Unit holding cost
annual ordering cost = - ANSWER-Number of Orders/Year x Ordering or setup Cost
annual holding, ordering, and total cost graph - ANSWER-
Total annual cycle inventory cost = - ANSWER-C= total annual cycle investory cost
Q= lot size in units
H= cost of holding one unit in inventory for a year
D= annual demand
S= cost of ordering or setting up one lot in dollars per lot
EOQ formula - ANSWER-
time between orders (TBO) - ANSWER-the average elapsed time between receiving
(or placing) replenishment orders of Q units for a particular lot size
TBO of EOQ formula - ANSWER-
if demand goes up what happens to EOQ? - ANSWER-it goes up
if order/set up costs go down what happens to EOQ? - ANSWER-it goes down
if holding costs go down what happens to EOQ? - ANSWER-it goes up
continuous review (Q) system aka reorder point (ROP) system - ANSWER-a system
designed to track the remaining inventory of a SKU each time a withdrawal is made
to determine whether it is time to reorder
