1. Which of the following is NOT a reason for carrying inventory?

a) Inventory can be used to meet variation in product demand.

b) Inventory can be used to maintain independence of operations.

c) Inventory can enable purchasing to take advantage of quantity discount.

d) Inventory can be used to hedge against uncertainity in material delivery time.

e) Inventory can be used to reuce flexibility in production scheduling.

2. Costs associated with transactions, shipping and handling, paperwork, and delivery are:

a) Inventory holding costs.

b) Purchase costs.

c) Setup costs.

d) Shortage costs.

e) none of the above

3. What is the implementation of the Fixed Order Quantity inventory policy?

a) When the inventory on hand is less than the maximum shelf level of R units, order the number of units which will restore the inventory level back to R units.

b) When the order size of Q units is received, place another order of Q units until the total inventory on hand is R units or less.

c) Reorder R units after an order quantity of Q units have been used.

d) When the current inventory on hand is less than or equal to the reorder level of R units, place an order of Q units.

e) None of the above is correct.

4. A restaurant consumes wine at the rate of 50 bottles per day. Currently, the restaurant manager purchases 150 bottles in an order. This ordering policy yields a total annual holding cost of $5,020 and a total annual ordering cost of $3,000. Is the restaurant adopting FOQ policy in its current inventory policy?

a) Yes.

b) No.

c) It can be yes or no, depending on the reorder level.

5. Which of the following is(are) NOT assumption(s) of the FOQ model with usage?

a) Demand is pretty stable and predictible over time.

b) Depletion of inventory (due to demand) and replenishment of inventory (due to multiple delivery shipments) occur at the same time.

c) When an order is places, the entire order of Q units will be delivered L days later.

d) Both A and B are correct.

e) A, B, and C are correct.