Question 1: A continuous review system is sometimes called a fixed interval reorder system.

True

False

Question 2: Which one of the following statements is best?

The level of safety stock maintained decreases when the desired cycle-service level increases.

The level of safety stock maintained decreases when the standard deviation of demand during lead-time increases.

When no safety stock is maintained, stockouts will occur during approximately 50% of the cycles.

The level of safety stock maintained is greater if mean absolute deviation (MAD) is used rather than standard deviation in estimating forecast errors.

Question 3: If on-hand inventory = 100 units, scheduled receipts = 100 units and backorders = 100 units, the Inventory Position (IP) is 100 units.

True

False

Question 4: The scheduled receipts are orders that have been placed but not yet received.

True

False

Question 5: A periodic review system is a system in which an item's inventory position is reviewed periodically rather than continuously.

True

False

Question 6: An inventory system answers two important questions: when to order and how much to order. Which of the following statements correctly explains how a Q system (continuous review system) or a P system (periodic review system) answers these questions?

Under a Q system, a fixed quantity is ordered every P time period.

Under a Q system, an order is placed to replenish the inventory position up to the target level T when the inventory position reaches the reorder point R.

Under a P system, a fixed quantity Q is ordered when the inventory position reaches the reorder point R.

Under a P system, an order is placed to replenish the inventory position up to the target level T every P time periods.

Question 7: Which one of the following statements represents an advantage of the P system over the Q system?

Less safety stock is carried to achieve the same service level.

The replenishment intervals can be more easily individualized for items.

Orders can be more easily combined to the same supplier.

A P system is more suitable for quantity discounts and capacity limitations.

Question 8: Which one of the following statements represents an advantage of a Q system over the P system?

A perpetual inventory system is not mandatory.

Orders for multiple items from the same supplier can be combined more easily.

Fixed replenishment intervals are possible, which can be, administratively, quite convenient.

The Q system is more suited for quantity discounts and physical limitations.

Question 9: Which one of the following statements about inventory control systems is best?

A single-bin system is essentially a P system, with the target inventory and current inventory position established visually.

A base-stock system minimizes ordering and setup costs by placing orders more infrequently.

The base-stock system is mostly used for inexpensive items because it maximizes cycle inventory costs.

Visual systems are intended for use with high-value items, such as jet engines, that don't experience a steady demand.

Question 10: If on-hand inventory = 100 units, scheduled receipts = 100 units and backorders = 100 units, the Inventory Position (IP) is the sum of the three, or 300 units.

True

False

Question 11: Which one of the following descriptions best defines the cycle-service level as a measure of customer service?

the preferred proportion of annual demand instantaneously filled from stock

the number of stockouts tolerated per year

the preferred proportion of days in the year when an item is in stock

the desired probability of not running out of stock in any one inventory cycle

Question 12: As the service level increases, the probability of not running out of stock during a cycle decreases.

True

False

Question 13: The two-bin inventory system is a type of visual system.

True

False

Question 14: A continuous review system is sometimes called a reorder point system.

True

False

Question 15: Which one of the following statements is best?

A P system requires more safety stock than a Q system.

A P system lends itself more to quantity discounts than does a Q system.

A P system requires more administrative control and computer support than does a Q system.

In a periodic review system, the value of Q is kept the same from one cycle to another.

Question 16: Scenario - A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead-time for the item is six weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. A normal distribution table is appended to this exam.

Use the information in Scenario. What is the economic order quantity (EOQ) for this item?

less than or equal to 175 units

greater than 175 units but less than or equal to 200 units

greater than 200 units but less than or equal to 225 units

greater than 225 units

Question 17: Scenario - You are the operations manager of a firm that uses the continuous-review inventory control system. Suppose the firm operates 52 weeks a year, 365 days, and has the following characteristics for its primary item:

Demand = 25,000 units/year
Ordering cost = $30/order
Holding cost = $8/unit/year
Lead time = 2 weeks
Standard deviation in weekly demand = 100 units

A normal distribution table is appended to this exam.

Use the information in Scenario. What is the annual cost of holding safety stock for this item if they use a 90% service level?

less than or equal to $1,500

greater than $1,500 but less than or equal to $1,550

greater than $1,550 but less than or equal to $1,600

greater than $1,600

Question 18: Scenario - A company operating under a continuous review system has an average demand of 50 units per week for the item it produces. The standard deviation in weekly demand is 20 units. The lead-time for the item is six weeks, and it costs the company $30 to process each order. The holding cost for each unit is $10 per year. The company operates 52 weeks per year. A normal distribution table is appended to this exam.

Use the information in Scenario. What is the desired safety stock level if the company has a policy of maintaining a 90% cycle-service level?

less than or equal to 50 units

greater than 50 but less than or equal to 100 units

greater than 100 but less than or equal to 150 units

greater than 150 units

Question 19: Jan Tuttle is the inventory manager of an art supply store. She uses a periodic review system for all oil paints. The number of periods between orders (P) for red #68 is 15 workdays. (The store operates 50 weeks per year, five workdays per week.) Additional information concerning red #68 follows.

Demand = 30 units/workday
Standard deviation of daily demand = 4 units/workday
Lead-time = 7 workdays
Desired cycle-service level = 85%
A normal distribution table is appended to this exam.

What is the target inventory level T for red #68?

less than or equal to 550 units

greater than 550 but less than or equal to 600 units

greater than 600 but less than or equal to 650 units

greater than 650 units

Question 20: Scenario - Cranium, Inc., purchases term papers from an overseas supplier under a continuous review system. The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day. It costs $60 to process each order and there is a five-day lead-time. The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level. Cranium operates 200 days per year. A normal distribution table is appended to this exam.

Use the information in Scenario. What service level does a reorder point of 1,524 imply?

less than or equal to 50%

greater than 50% but less than or equal to 55%

greater than 55% but less than or equal to 60%

greater than 60%