Introduction to Management Science, 10e (Taylor)

Chapter 16 Inventory Management

1) Independent demand items are used internally to produce a final product.
Answer: FALSE
Diff: 2
Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: dependent demand items
2) Dependent demand items are final products demanded by an external customer.
Answer: FALSE
Diff: 2
Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: independent demand items
3) Inventory costs include carrying, ordering, and shortage costs.
Answer: TRUE
Diff: 1
Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: inventory costs
4) The purpose of inventory management is to determine how much and when to order.
Answer: TRUE
Diff: 1
Page Ref: 746
Main Heading: Elements of Inventory Management
Key words: inventory management
5) In a continuous inventory system, a constant amount is ordered when inventory declines to a
predetermined level.
Answer: TRUE
Diff: 2
Page Ref: 746
Main Heading: Inventory Control Systems
Key words: inventory control systems, continuous inventory system
6) In a periodic inventory system, a constant amount is ordered when inventory declines to a
predetermined level.
Answer: FALSE
Diff: 2
Page Ref: 747
Main Heading: Inventory Control Systems
Key words: continuous inventory system

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7) The EOQ is the optimal order quantity that will minimize total carrying costs.
Answer: FALSE
Diff: 2
Page Ref: 748
Main Heading: The Basic EOQ Model
Key words: economic order quantity models, EOQ models
8) Assumptions of the basic EOQ model include constant demand, no shortages, constant lead
time, and gradual usage.
Answer: FALSE
Diff: 2
Page Ref: 748
Main Heading: The Basic EOQ Model
Key words: economic order quantity models, EOQ models
9) The non-instantaneous receipt model applies only to manufacturing.
Answer: FALSE
Diff: 3
Page Ref: 754
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ model with non-instantaneous receipt
10) The EOQ model with shortages does not allow backorders.
Answer: FALSE
Diff: 3
Page Ref: 756
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
11) The basic EOQ model plays no role in determining order sizes in the presence of quantity
discounts.
Answer: FALSE
Diff: 2
Page Ref: 761
Main Heading: Quantity Discounts
Key words: EOQ model quantity discounts
12) Quantity discounts are always evaluated with carrying cost as a percentage of price.
Answer: FALSE
Diff: 2
Page Ref: 762
Main Heading: Quantity Discounts
Key words: EOQ model quantity discounts
13) The service level is the probability that the inventory available during lead time will meet
demand.
Answer: TRUE
Diff: 2
Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: service level, safety stocks

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14) If service level is 50%, then safety stock is equal to 50% of lead time demand.
Answer: FALSE
Diff: 2
Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
15) The reorder point is the date when a new order should be placed.
Answer: FALSE
Diff: 1
Page Ref: 766
Main Heading: Reorder Point and Safety Stock
Key words: reorder point
16) If lead time and demand are constant, safety stock is equal to demand multiplied by lead
time.
Answer: FALSE
Diff: 1
Page Ref: 768
Main Heading: Reorder Point and Safety Stock
Key words: safety stock
17) Periodic inventory systems normally require smaller safety stock than a continuous inventory
system.
Answer: FALSE
Diff: 2
Page Ref: 772
Main Heading: Economic Order Quantity Models
Key words: periodic inventory system
18) Techniques for inventory analysis are widely used to analyze other types of problems.
Answer: FALSE
Diff: 2
Page Ref: 773
Main Heading: Economic Order Quantity Models
Key words: inventory system
19) Carrying costs include storage cost, interest and depreciation.
Answer: TRUE
Diff: 2
Page Ref: 744
Main Heading: Economic Order Quantity Models
Key words: inventory costs
20) Ordering costs include transportation, shipping and inspection.
Answer: TRUE
Diff: 2
Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: inventory costs

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21) Shortage costs include loss of customer goodwill.

Answer: TRUE
Diff: 2
Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: inventory costs
22) If a business frequently runs out of inventory their service levels are negative.
Answer: FALSE
Diff: 2
Page Ref: 768
Main Heading: Economic Order Quantity Models
Key words: service level
23) __________ demand items are generally final products demanded by customers.
Answer: independent
Diff: 2
Page Ref: 744
Main Heading: Economic Order Quantity Models
Key words: independent demand items
24) The purpose of inventory management is to determine __________ and __________ to
order.
Answer: how much/when
Diff: 2
Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: inventory management
25) __________ demand items are used internally to produce a final product.
Answer: dependent
Diff: 2
Page Ref: 744
Main Heading: Economic Order Quantity Models
Key words: independent demand items
26) Inventory __________ costs include storage cost and the cost of capital.
Answer: carrying
Diff: 2
Page Ref: 744
Main Heading: Economic Order Quantity Models
Key words: carrying cost
27) Inventory __________ costs include transportation and inspection.
Answer: ordering
Diff: 2
Page Ref: 745
Main Heading: Economic Order Quantity Models
Key words: ordering costs

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28) A __________ occurs when customer demand cannot be met because of insufficient
inventory.
Answer: shortage or stock out
Diff: 2
Page Ref: 756
Main Heading: Economic Order Quantity Models
Key words: shortage or stock out costs
29) In a __________ inventory system, a constant amount is ordered when inventory declines to
a predetermined level.
Answer: continuous
Diff: 2
Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: continuous inventory system
30) In a __________ inventory system an order is placed for a variable amount after a fixed
passage of time
Answer: periodic
Diff: 2
Page Ref: 747
Main Heading: Economic Order Quantity Models
Key words: periodic inventory system
31) __________ is the optimal order quantity that will minimize the total inventory costs.
Answer: EOQ or economic order quantity
Diff: 1
Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
32) A __________ occurs when an item is out of stock and is sold to the customer when a
shipment arrives.
Answer: backorder
Diff: 2
Page Ref: 757
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model, EOQ model assumptions
33) Costs involved in a typical inventory model include __________ and __________.
Answer: carrying costs and ordering costs
Diff: 1
Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: EOQ model, average inventory

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34) In the basic EOQ model, as the size of the order increases, the annual __________ cost
decreases.
Answer: ordering
Diff: 2
Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model inventory costs, ordering costs
35) In the basic EOQ model, as the size of the order increases, the annual __________ cost
increases.
Answer: carrying
Diff: 2
Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model, inventory costs, carrying costs
36) In the quantity discounts model, the __________ must be included in the total cost
calculation. This variable is not included in the basic EOQ model.
Answer: purchase price
Diff: 2
Page Ref: 762
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model inventory costs, carrying costs
37) If all the variables are held constant, the total inventory cost in a non-instantaneous receipts
model is __________ than the total cost in the basic EOQ model.
Answer: larger or higher
Diff: 3
Page Ref: 754
Main Heading: Economic Order Quantity Models
Key words: production lot size model, non-instantaneous receipts model
38) The __________ determines when an order should be placed for a continuous review
inventory system.
Answer: reorder point
Diff: 1
Page Ref: 767
Main Heading: Economic Order Quantity Models
Key words: reorder point
39) __________ is inventory that is used to help protect against stockouts.
Answer: Safety Stock
Diff: 1
Page Ref: 767
Main Heading: Economic Order Quantity Models
Key words: safety stock

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40) __________ is the probability that the inventory available during the lead time will meet
demand.
Answer: Service level
Diff: 2
Page Ref: 768
Main Heading: Economic Order Quantity Models
Key words: service level
41) If lead time and demand are constant then __________ is zero.
Answer: safety stock
Diff: 2
Page Ref: 768
Main Heading: Economic Order Quantity Models
Key words: safety stock
42) For the __________ inventory system, Q, the quantity ordered, can vary.
Answer: periodic
Diff: 2
Page Ref: 747
Main Heading: Economic Order Quantity Models
Key words: periodic inventory system
43) The EOQ model is __________ , or resistant to errors in the cost estimates and demand.
Answer: robust
Diff: 2
Page Ref: 753
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
44) __________ costs and _________ costs react inversely to each other in response to an
increase in order size.
Answer: Carrying and ordering
Diff: 2
Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: inventory costs
45) The basic EOQ model assumes that __________ is known with certainty and is relatively
constant over time.
Answer: demand
Diff: 2
Page Ref: 748
Main Heading: Economic Order Quantity Models
Key words: EOQ model, econ order quantity models, assumption of EOQ models
46) In the basic EOQ model, if D=80 per month, Co=$13, and Cc=$11 per unit per month, what
is the EOQ?
Answer: 13.75
Diff: 1
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models

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47) In the basic EOQ model, if D=40 per month, Co=$9, and Cc=$8 per unit per month, what is
the EOQ?
Answer: 9.49
Diff: 1
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
48) In the basic EOQ model, if D=100 per month, Co=$20, and Cc=$15 per unit per month, what
is the EOQ?
Answer: 16.33
Diff: 1
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
49) In the basic EOQ model, if annual demand is 50 units, carrying cost is $2 per unit per year,
and ordering cost is $15, what is the EOQ?
Answer: 27.39
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead
time to obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per
week and a standard deviation of 40 units per week. The desired service level is 98.5%. The
ordering cost is $20, and carrying cost is 20% of the items cost, which is $10.
50) Determine the order quantity for product Y. (Assume 52 weeks of operation per year.)
Answer: 456.07
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model, EOQ model
51) Determine the annual setup cost and the annual carrying cost for product Y. (Assume 52
weeks of operation per year.)
Answer: 456.07
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: the annual setup cost, economic order quantity models
52) Determine the total annual inventory cost for product Y. Include the item cost in your
calculations. (Assume 52 weeks of operation per year.)
Answer: 104,912
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: the annual setup cost, economic order quantity models

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53) Determine the reorder point for product Y.

Answer: 522.76
Diff: 2
Page Ref: 768
Main Heading: Reorder Point
Key words: economic order quantity models, reorder point
The injection molding department of Alver Inc. uses an average of 40 pounds of a special
powder per day. The plant operates 250 days per year. The daily usage of the powder is normally
distributed with a standard deviation of 5 pounds per day. The lead time to obtain the powder
from a supplier is 9 days. The annual holding cost is $2. per unit and the cost of ordering the
powder is $50.
54) How many units should Alver Inc. order in order to minimize annual ordering and carrying
cost?
Answer: 707.11
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model
55) How many orders will be placed each year?
Answer: 14.14 orders
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model, number of orders
56) Determine the reorder point for a service level of 97%.
Answer: 388.2 units
Diff: 2
Page Ref: 768
Main Heading: Reorder Point
Key words: reorder point, service level
The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean of 12
jars and a standard deviation of 4. The manager checks the inventories on shelves and places an
order every three days. Delivery lead time is two days.
57) How much safety stock of peanut butter should they have for a 99% service level?
Answer: Z = 2.33, r = 3, and L = 2
SS = 2.33 (4)(5)1/2 = 20.8 or 21 jars
Diff: 2
Page Ref: 772
Main Heading: Inventory Control Systems
Key words: payoff table

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58) If there are 4 jars on the shelf when an order is placed, how much should the store order?
Answer: Base stock level = d (tb + L) + safety stock = 12(5) + 21 = 60 + 21 = 81.
Order quantity = 81 - 4 = 77 boxes.
Diff: 2
Page Ref: 772
Main Heading: Inventory Control Systems
Key words: payoff table
59) The daily demand for a product is normally distributed with a mean of 80 and a standard
deviation of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs
$8 and the carrying rate per year is 10% of the item cost. Determine the economic order quantity.
Answer: 1209
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model
60) In a non-instantaneous receipt model, daily demand is 55 units and daily production is 120
units, Co=$70 and Cc=$4 per unit/year. The production facility operates 300 days per year. What
is the maximum inventory level?
Answer: 411.63 units
Diff: 1
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ model with non-instantaneous receipt
61) In a non-instantaneous receipt model, daily demand is 55 units and daily production is 120
units, Co=$70 and Cc=$4 per unit/year. The production facility operates 300 days per year. What
is the optimal order quantity?
Answer: 759.93
Diff: 1
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: non-instantaneous receipt model, economic production model
62) A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is
$20 and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced
in-house where the daily production rate is 50 units. Assume 360 working days per year and
determine the economic production quantity.
Answer: 490 units
Diff: 2
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: econ order/prod quantity, non-instantaneous receipts model

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63) A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is
$20 and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced
in-house where the daily production rate is 50 units. Assume 360 working days per year and
determine the annual ordering cost and carrying cost.
Answer: $147 and $147 for a total of $294.
Diff: 2
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: econ order/prod quant, non-instant receipt mod, an order/carry cost
64) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and CS =$25, what is the total annual shortage cost?
Answer: 296.51
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the total annual shortage cost
65) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and CS =$25, what is the optimal order quantity?
Answer: Qopt = 495.74 units
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the optimal order quantity
66) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and CS =$25, what is the annual ordering cost?
Answer: 1355.55
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: the annual ordering cost, EOQ model with shortages
67) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and CS =$25, what is the optimal stock out level?
Answer: Sopt = 108.44 units
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: optimal stock out level, EOQ model with shortages
68) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and CS =$25, what is the annual carrying cost?
Answer: 1059.03
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: the annual carrying cost, EOQ model with shortages

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69) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and CS =$25, what is the total minimum annual inventory cost?
Answer: TCmin = 2711.09
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: total minimum annual inventory cost, EOQ model with shortages
A company distributes repair parts for high end appliances. The annual demand is 81,000 and the
company operates 300 days per year. The annual carrying cost is 20% of the item cost, which is
$500. The ordering cost is estimated at $60 and the shortage cost is $150.
70) Determine the optimal order quantity.
Answer: 402.5
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
71) Determine the optimal shortage level.
Answer: 161
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the optimal shortage level
72) How many order per year will they place?
Answer: 201
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual carrying cost
73) What is the maximum inventory level?
Answer: 242
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual setup cost
74) Determine the annual shortage cost.
Answer: $4,830
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual shortage cost

12
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

75) If the daily demand is 30 and the lead time in days is 3, what is the reorder point?
Answer: 90
Diff: 1
Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
76) If the daily demand is 67 and the lead time in days is 2, what is the reorder point?
Answer: 134
Diff: 1
Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
77) If the daily demand is 25 and the lead time in days is 4, what is the reorder point?
Answer: 100
Diff: 1
Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
78) Sonny Lawler's law office uses EOQ models to manage their office supplies. They've been
ordering ink refills for their printers in quantities of 60 units. The firm estimates carrying cost at
40% of the $10 unit cost and that annual demand is about 240 units per year. The assumptions of
the basic EOQ model are thought to apply. For what value of ordering cost would its action be
optimal?
Answer: $30
Diff: 2
Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity model
79) Dana Swor's Dream Store sells weight loss products. Her best-selling item, an energy booster
and fat burning pill, has an annual demand of 400 units. Ordering cost is $40 and carrying cost
is $5 per unit year. How many units should she order to minimize total inventory costs?
Answer: 80
Diff: 2
Page Ref: 752
Main Heading: Reorder Point
Key words: EOQ model
80) Annual demand for a paperback dictionary at the bookstore is 1200 units. Ordering costs are
350, carrying costs are $6 per unit per year, and the lead time is 9 days. The bookstore is open for
300 days of the year. What is the reorder point ?
Answer: 36
Diff: 2
Page Ref: 772
Main Heading: Economic Order Quantity Models
Key words: reorder point

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81) If average demand for an inventory item is 200 units per day, lead time is 3 days, and safety
stock is 100 units, what is the reorder point?
Answer: 700
Diff: 1
Page Ref: 772
Main Heading: Reorder Point
Key words: safety stock, reorder point
82) If average demand for an inventory item is 180 units per day, lead time is 5 days, and safety
stock is 90 units, what is the reorder point?
Answer: 990
Diff: 1
Page Ref: 772
Main Heading: Reorder Point
Key words: reorder point
83) Annual demand for notecards at Suzie's Stationery shop is 10,000 units. Deliveries take
about 5 working days and Suzie operates 300 days per year. Calculate the reorder point for the
notecards that she stocks.
Answer: 167 notecards = 33.33 X 5
Diff: 1
Page Ref: 772
Main Heading: Reorder Point
Key words: reorder point
A bakery uses an average of 60 ounces of organic orange juice daily. Demand is normally
distributed with a standard deviation of 15 ounces. The bakery places orders every seven days.
The lead time for delivery of the juice is three days.
84) Compute the safety stock required to achieve a 98% service level
Answer: 97 ounces
Diff: 1
Page Ref: 772
Main Heading: Inventory Control Systems
Key words: periodic inventory system
85) If the bakery has 190 ounces at the time an order is placed, how much should be ordered?
Answer: 697 - 190 = 507 ounces
Diff: 1
Page Ref: 772
Main Heading: Inventory Control Systems
Key words: periodic inventory system

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86) The daily demand for a product is normally distributed with a mean of 80 and a standard
deviation of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs
$8 and the carrying rate per year is 10% of the item cost. Determine the reorder point to satisfy
90% of the orders.
Answer: 340.48
Diff: 2
Page Ref: 768
Main Heading: Reorder Point
Key words: economic order quantity, reorder point
87) A bakery's use of corn syrup is normally distributed with a mean of 50 gallons per day and a
standard deviation of 5 gallons per day. Lead time for delivery of the syrup is normal with a
mean of 4 days and a standard deviation of 2 days. The manager wants a service level of 99
percent. Calculate the reorder point.
Answer: 434 gallons
Diff: 3
Page Ref: 768
Main Heading: Reorder Point
Key words: reorder point, variable demand, variable lead time
88) A bakery's use of corn syrup is normally distributed with a mean of 50 gallons per day and a
standard deviation of 5 gallons per day. Lead time for delivery of the syrup is normal with a
mean of 4 days and a standard deviation of 2 days. The manager reorders when his inventory
drops to 300 gallons. What cycle service level is implied by this policy?
Answer: z = .995, so service level = 84%
Diff: 3
Page Ref: 768
Main Heading: Reorder Point
Key words: reorder point, variable demand/lead time, service level
89) A manager has just received a revised price schedule from a vendor. What order quantity
should the manager use in order to minimize total costs? Annual Demand is 120 units, ordering
cost is $10, and annual carrying cost is $1 per unit.
Quantity
1-59
60-99
100 or more

Unit Price
$15
$14
$13

Answer: Optimal Q = 49. TC(49) = $1849; TC(60)=$1730; TC (100) = $1622, so order 100.
Diff: 3
Page Ref: 762-763
Main Heading: Quantity Discounts
Key words: quantity discounts, constant carrying cost per unit

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Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

90) An office manager uses 400 boxes of file folders per year. The price is $8.50 per box for an
order size of 199 boxes or less, $8.00 per box for orders of 200 to 799 boxes, and $7.50 per box
for an order of 800 or more boxes. Carrying cost is 20 percent of the price of the product and
ordering costs are $80. What order quantity minimizes total annual cost?
Answer: Optimal Q = 194. TC (194) = $3730; TC (200) = $3520; TC (800) = $3640, so order
200.
Diff: 3
Page Ref: 763-764
Main Heading: Quantity Discounts
Key words: quantity discounts, carrying cost as percent of price
91) __________ demand items are used internally to produce a final product.
A) Independent
B) Dependent
C) Assumed
D) Internal
E) Integrated
Answer: B
Diff: 2
Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: inventory management
92) __________ demand items are final products demanded by an external customer.
A) Assumed
B) Dependent
C) Independent
D) External
E) Integrated
Answer: C
Diff: 2
Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: independent demand
93) Inventory costs include
A) carrying
B) ordering
C) shortage costs
D) all of the above
Answer: D
Diff: 2
Page Ref: 744
Main Heading: Elements of Inventory Management
Key words: inventory costs

16
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

94) The purpose of inventory management is to determine

A) timing and cost of orders
B) quantity and cost of orders
C) timing and quantity of orders
D) ordering and carrying costs
Answer: C
Diff: 2
Page Ref: 746
Main Heading: Elements of Inventory Management
Key words: inventory management
95) A keyboard costs $1,000, and the annual holding cost is 25%. Annual demand is 10,000
units, and the order cost is $150 per order. What is the approximate economic order quantity?
A) 16
B) 70
C) 110
D) 183
Answer: C
Diff: 3
Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
96) In a(n) __________ inventory system a constant amount is ordered when inventory declines
to a predetermined level.
A) optimal
B) economic
C) periodic
D) continuous
Answer: D
Diff: 2
Page Ref: 746
Main Heading: Inventory Control Systems
Key words: continuous inventory system
97) In a(n) __________ inventory system, an order is placed for a variable amount after a fixed
passage of time.
A) periodic
B) continuous
C) optimal
D) economic
Answer: A
Diff: 2
Page Ref: 747
Main Heading: Inventory Control Systems
Key words: periodic inventory system

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98) EOQ is a(n) __________ inventory system.

A) periodic
B) continuous
C) optimal
D) economic
Answer: B
Diff: 3
Page Ref: 746
Main Heading: Economic Order Quantity Models
Key words: economic order quantity models, EOQ models
99) EOQ is the optimal order quantity that will __________ total inventory costs.
A) maximize
B) minimize
C) steady
D) maintain
E) improve
Answer: B
Diff: 2
Page Ref: 748
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
100) Assumptions of the EOQ model include
A) constant demand and no shortages
B) constant lead time
C) instantaneous order receipt
D) all of the above
Answer: D
Diff: 2
Page Ref: 748
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
101) In the basic EOQ model, if lead time increases from 5 to 10 days , the EOQ will
A) double
B) increase, but not by double the amount
C) remain the same
D) decrease
Answer: C
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, econ order quantity models, assumption of EOQ models

18
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

102) The economic production quantity is 500 units (units are delivered to the user department as
they come off the production line). If the firm decides to buy this item from an outside supplier
rather than producing it, the economic purchase quantity would probably be (assume that
inventory costs of production and purchasing an item are the same):
A) less than 500 units
B) more than 500 units
C) 500 units
D) the direction of change in quantity cannot be determined without additional information
Answer: B
Diff: 3
Page Ref: 755
Main Heading: The Basic EOQ Model
Key words: economic production quantity model, non-instant receipts model
103) If order quantity is increased, annual holding cost __________, annual order cost
__________, and change in annual total cost __________.
A) decreases, increases, is positive
B) decreases, increases, can not be determined
C) decreases, decreases, can not be determined
D) increases, decreases, is negative
E) increases, decreases, can not be determined
Answer: E
Diff: 3
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: economic order quantity model
104) The EOQ minimizes total __________ cost.
A) inventory
B) purchase
C) ordering
D) marketing
E) carrying
Answer: C
Diff: 3
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models, inventory costs

19
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

105) In an EOQ model, as the carrying cost increases, the order quantity :
A) increases.
B) decreases.
C) remains the same
D) cannot be determined
Answer: B
Diff: 2
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
106) In the basic EOQ model, if D=60 per month, S=$12, and H=$10 per unit per month, what is
the EOQ?
A) 11
B) 12
C) 13
D) 14
Answer: B
Diff: 1
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models
107) In the basic EOQ model, if annual demand is 50, carrying cost is $2 per unity per year, and
ordering cost is $15, what is the EOQ?
A) 27.39
B) 26.39
C) 25.39
D) 24.39
E) 22.39
Answer: A
Diff: 1
Page Ref: 752
Main Heading: The Basic EOQ Model
Key words: EOQ model, economic order quantity models

20
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

108) The daily sales of a peanut butter at Power's Grocery are normally distributed, with a mean
of 12 jars and a standard deviation of 4. The manager checks the inventories on shelves and
places an order every three days. Delivery lead time is two days and they carry 21 jars for safety
stock. If there are 4 jars on the shelf when an order is placed, how much should the store order?
A) 77
B) 81
C) 32
D) 36
E) cannot be determined from the information provided
Answer: A
Diff: 1
Page Ref: 772
Main Heading: Inventory Control Systems
Key words: periodic review
109) In a non instantaneous receipt model, daily demand is 55 units and daily production is 120
units, Co=$70 and Cc=$4 per unit per year. What is the maximum inventory level? (Assume that
the facility is open 365 days per year)
A) 616.9
B) 618.4
C) 620.3
D) 622.9
E) 625.5
Answer: A
Diff: 2
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: non-instantaneous receipt model
110) A firm is presently purchasing an itme for inventory using the basic EOQ model. They plan
on making the product themselves and will be using the EOQ model based on non-instantaneous
receipt of inventory. If everything else stays the same, what changes should the firm expect?
A) EOQ decreases
B) Total relevant inventory (annual setup and annual carrying) cost increase
C) Average inventory level decreases
D) Reorder point increases
E) Safety stock increases
Answer: C
Diff: 3
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: non-instantaneous receipt model, economic production model

21
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

111) When using the EOQ Formula with non-instantaneous production, as the demand rate (D)
increases more than the rate of production, the EOQ:
A) increases
B) decreases
C) remains the same
D) cannot be determined
Answer: A
Diff: 3
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: non-instantaneous receipt model, economic production model

112) The diagram above represents which type of inventory model?

A) Economic Order Quantity (EOQ)
B) EOQ with Noninstantaneous Receipt
C) Economic Production Quantity
D) Fixed Period Model
E) none of the above
Answer: B
Diff: 1
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt

22
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

113) The slope of the line labeled "B" in the diagram above is:
A) Order rate
B) Rate of inventory demand
C) Production rate
D) Shipping rate
E) Production rate minus rate of inventory demand
Answer: E
Diff: 2
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
114) The slope of the line labeled "A" in the diagram below is:
A) Order rate
B) Rate of inventory demand
C) Production rate
D) Shipping rate
E) Production rate minus rate of inventory demand
Answer: C
Diff: 3
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
115) The slope of the line labeled "C" in the diagram below is:
A) Order rate
B) Rate of inventory demand
C) Production rate
D) Shipping rate
E) Production rate minus rate of inventory demand
Answer: B
Diff: 2
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
116) The interval labeled "E" in the diagram below is:
A) Production cycle
B) Production run length
C) Shipping lead time
D) Inventory fill rate
Answer: A
Diff: 3
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt

23
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

117) The interval labeled "D" in the diagram below is:

A) Production cycle
B) Production run length
C) Shipping lead time
D) Inventory fill rate
Answer: B
Diff: 1
Page Ref: 754-755
Main Heading: The EOQ Model with Non-Instantaneous Receipt
Key words: EOQ with noninstantaneous receipt
118) A product has demand during lead time of 100 units, with a standard deviation of 25 units.
What safety stock (approximately) provides a 95% service level?
A) 41
B) 55
C) 95
D) 140
Answer: A
Diff: 3
Page Ref: 768
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
119) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and Cs =$25, what is the total annual shortage cost?
A) 294.72
B) 296.51
C) 298.53
D) 299.17
E) 285.91
Answer: B
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages
120) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and Cs =$25, what is the order quantity?
A) 394.72
B) 285.91
C) 495.74
D) 296.51
E) 456.34
Answer: C
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages

24
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

121) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and Cs =$25, what is the optimal stock out level?
A) 96.44
B) 102.36
C) 108.44
D) 114.64
E) 121.43
Answer: C
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the optimal stock out level
122) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and Cs =$25, what is the annual carrying cost?
A) 2711.09
B) 1059.03
C) 1355.55
D) 296.51
E) 495.74
Answer: B
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual carrying cost
123) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160,
Cc=$7 per unit per year and Cs =$25, what is the annual ordering cost?
A) 2711.09
B) 1059.03
C) 1355.55
D) 296.51
E) 495.74
Answer: C
Diff: 2
Page Ref: 757-758
Main Heading: The EOQ Model with Shortages
Key words: EOQ model with shortages, the annual ordering cost

25
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

The manager of the Quick Stop Corner Convenience Store (which is open 360 days per year)
sells four cases of Stein soda each day (1,440 cases per year). Order costs are $8.00 per order.
The lead time for an order is three days. Annual holding costs are equal to $57.60 per case.
124) If the manager orders 16 cases each time she placed an order, what is the average inventory
level?
A) 4 cases
B) 8 cases
C) 12 cases
D) 20 cases
E) 16 cases
Answer: B
Diff: 2
Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
125) If the manager orders 16 cases each time she placed an order, how many orders would she
place in a year?
A) 10
B) 22.5
C) 50
D) 72
E) 90
Answer: E
Diff: 2
Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ
126) What is the optimal order quantity for Stein soda?
A) 4 cases
B) 8 cases
C) 12 cases
D) 20 cases
E) 16 cases
Answer: D
Diff: 2
Page Ref: 752
Main Heading: Economic Order Quantity Models
Key words: economic order quantity, EOQ

26
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

127) What is the reorder point for Stein soda?

A) 4 cases
B) 8 cases
C) 12 cases
D) 20 cases
E) 16 cases
Answer: C
Diff: 2
Page Ref: 767
Main Heading: Economic Order Quantity Models
Key words: reorder point
128) If the daily demand is 50 and the lead time in days is 4, what is the reorder point?
A) 200
B) 220
C) 240
D) 260
E) 300
Answer: A
Diff: 1
Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
129) If the daily demand is 40 and the level time in days is 4, what is the reorder point?
A) 120
B) 140
C) 160
D) 180
E) 200
Answer: C
Diff: 1
Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
130) If the daily demand is 10 and the level time in days is 8, what is the reorder point?
A) 50
B) 60
C) 70
D) 80
E) 90
Answer: D
Diff: 1
Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point

27
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

131) If average demand for an inventory item is 200 units per day, lead time is 3 days, and safety
stock is 100 units, what is the reorder point?
A) 300
B) 500
C) 600
D) 700
E) 800
Answer: D
Diff: 2
Page Ref: 767
Main Heading: Reorder Point
Key words: reorder point
132) Ruby owns a small caf and uses a linen supplier for her tablecloths. Whenever she needs
more tablecloths, she calls the supplier. She uses an average of 12 tablecloths a day with a
standard deviation of 3 tablecloths. Lead time is a constant 2 days. If Ruby is willing to accept a
5% stockout risk, what is the reorder point, rounded to the nearest tablecloth? Assume demand is
normally distributed.
A) 28
B) 31
C) 34
D) 42
E) none of the above
Answer: B
Diff: 2
Page Ref: 768
Main Heading: Reorder Point
Key words: reorder point
133) The service level is the probability that
A) the inventory will meet demand
B) the inventory available during lead time will meet demand
C) the inventory available during lead time will not meet demand
D) the inventory will not meet demand
Answer: B
Diff: 2
Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels

28
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

134) What service level results in zero safety stock in reorder point calculations?
A) 0%
B) 33%
C) 50%
D) 100%
E) 80%
Answer: C
Diff: 2
Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
135) The __________ is the probability that the inventory available during lead time will meet
demand.
A) service level
B) inventory level
C) review period
D) reorder point
E) maximum inventory level
Answer: A
Diff: 2
Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
136) If annual demand equals 1000 units, the number of working days per year is 250, Co=$300
per order and Cc=$3 per unit, how many days are between orders in the basic EOQ model?
A) 105
B) 110
C) 112
D) 115
E) 120
Answer: C
Diff: 2
Page Ref: 752
Main Heading: Determining Safety Stocks Using Service Levels
Key words: EOQ model, economic order quantity models

29
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

137) Annual demand for a paperback dictionary at a bookstore is 1200 units. The order cost is
$350 and the carrying cost is $6 per unit per year. The number of working days per year is 365.
What is the reorder point? Assume that the basic EOQ model is applicable.
A) 29.2
B) 29.4
C) 29.6
D) 29.8
E) 30.1
Answer: C
Diff: 3
Page Ref: 767
Main Heading: Determining Safety Stocks Using Service Levels
Key words: reorder point
138) As service level increases, expected number of stock outs __________ and safety stock
__________.
A) increase, increases
B) decrease, decreases
C) decrease, increases
D) increase, decreases
Answer: C
Diff: 2
Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
139) Adding 1.5 standard deviations of safety stock to the average demand during lead time will
result in a service level of approximately:
A) 50%
B) 68.4%
C) 84.1%
D) 93.3%
E) 97.7%
Answer: D
Diff: 2
Page Ref: 768
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
140) A periodic inventory system
A) uses fixed order sizes at variable time intervals
B) normally requires a larger safety stock
C) cannot be used if demand is variable
D) is used to periodically manage inventory
Answer: B
Diff: 2
Page Ref: 772
Main Heading: Order Quantity for a Periodic Inventory System
Key words: periodic inventory system, fixed time period inventory system

30
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall

141) Demand for a product is constant but lead time is variable. The demand during the lead
time is normally distributed with a mean of 40 and a standard deviation of 4. They computed a
reorder point of 45 units Approximately what service level is being used?
A) 85%
B) 90%
C) 95%
D) 98%
E) none of the above
Answer: B
Diff: 2
Page Ref: 767
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels
142) The economic order quantity is especially sensitive to which of the following?
A) ordering cost
B) carrying cost
C) annual demand
D) lead time
E) none of the above
Answer: E
Diff: 2
Page Ref: 753
Main Heading: Determining Safety Stocks Using Service Levels
Key words: safety stocks, service levels

31
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall