What are the annual inventory holding costsWhat are the annual inventory holding costs

Feb 15, 2024

 

Question 1: The primary lever to reduce anticipation inventory is to place orders closer to the time when they must be received.

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True

False

Question 2: Items sold to a firm’s customers are called:

quarantined materials

work-in-process

raw materials

finished goods

Question 3: Repeatability is an undesirable feature of some orders because they must be repeated until the order is filled correctly.

True

False

Question 4: A backorder occurs when a customer order cannot be filled when it is placed, but is instead filled later.

True

False

Question 5: One of the secondary levers for reducing pipeline inventory is to:

offer seasonal pricing plans.

increase capacity cushions.

accept only large orders.

select more responsive suppliers.

Question 6: Inventory management is the planning and controlling of inventories in order to meet the competitive priorities of the organization.

True

False

Question 7: As the annual demand increases, the EOQ also increases.

True

False

Question 8: One component of the ordering cost of inventory is shrinkage.

True

False

Question 9: Which of the following is NOT a lever for reducing cycle inventories?

place purchased item orders at fixed intervals

reduce lot sizes for items moving in the supply chain

streamline methods for placing orders and making machine set ups

increase repeatability to eliminate the need for changeovers

Question 10: Considering the EOQ model, smaller lots are justified when holding costs are decreased.

True

False

Question 11: One component of the holding cost of inventory is interest.

True

False

Question 12: A stockout occurs when an item that is typically stocked is not available to satisfy a demand the moment it occurs.

True

False

Question 13: A quantity discount is attractive because there is a drop in the price per unit when the order is sufficiently large.

True

False

Question 14: Reducing setup costs will increase the pressure to keep larger inventories.

True

False

Question 15: EOQ should be used if you use a make-to-order strategy and the customer specifies the entire order be delivered in one shipment.

True

False

Question 16: Scenario – The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the “Smooth Shifter”, is used for the two most expensive of Burdell’s four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year.

Use the information in Scenario. What are the annual inventory holding costs if Burdell orders using the EOQ quantity?

less than or equal to $300

greater than $300 but less than or equal to $500

greater than $500 but less than or equal to $700

greater than $700

Question 17: Scenario – The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year.

Use the information in Scenario. What are the annual inventory holding costs if Talbot orders using the EOQ quantity?

less than or equal to $1,500

greater than $1,500 but less than or equal to $4,000

greater than $4,000 but less than or equal to $6,500

greater than $6,500

Question 18: Scenario – The Talbot Company uses electrical assemblies to produce an array of small appliances. One of its high cost / high volume assemblies, the XO-01, has an estimated annual demand of 8,000 units. Talbot estimates the cost to place an order is $50, and the holding cost for each assembly is $20 per year. The company operates 250 days per year.

Use the information in Scenario. What is the economic order quantity for the XO-01?

less than or equal to 100 units

greater than 100 units but less than or equal to 180 units

greater than 180 units but less than or equal to 250 units

greater than 250 units

Question 19: Use the following to answer the questions below.

Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer’s average demand for A is 75 units per week. Lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350.

Refer to the instruction above. With the change in purchased quantities, the average cycle inventory will:

decrease by 75 units.

increase by 50 units.

decrease by 25 units.

increase by 25 units.

Question 20: Scenario – The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the “Smooth Shifter”, is used for the two most expensive of Burdell’s four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year.

Use the information in Scenario. The purchasing manager decides that, in order to save purchasing time, orders for the Smooth Shifter will be placed once a month, or twelve times per year. How much does this approach cost Burdell in additional annual holding and ordering costs (instead of Burdell ordering using the EOQ quantity)?

more than $500

more than $200 but less than or equal to $500

more than $50 but less than or equal to $200

less than or equal to $50

 

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