Sample questions/ problems for Inventory Management:

1. When developing inventory cost models, which of the following are not included as costs to
place an order?
A) Phone calls
B) Taes
!) !lerical
") !alculating #uantity to order
$) Postage
Answer% B
&. Which of the following is not included as an inventory holding cost?
A) Annuali'ed cost of materials
B) (andling
!) )nsurance
") Pilferage
$) *torage facilities
Answer% A
+. Which of the following is not an assumption of the ,asic fied-order #uantity inventory model?
A) .rdering or setup costs are constant
B) )nventory holding cost is ,ased on average inventory
!) "iminishing returns to scale of holding inventory
") /ead time is constant
$) "emand for the product is uniform throughout the period
Answer% !
0. Assuming no safety stoc1, what is the re-order point 23) given an average daily demand of 45
units, a lead time of 15 days and 6&4 units on hand?
A) 445
B) 455
!) 714
") 045
$) 074
Answer% B
4. )f annual demand is 1&,555 units, the ordering cost is 86 per order and the holding cost is 8&.45
per unit per year, which of the following is the optimal order #uantity?
A) 476
B) &05
!) 1&5.0
") 65.46
$) 46.5+
Answer% B
1
6. 9sing the economic order #uantity model, which of the following is the total ordering cost of
inventory given an annual demand of +6,555 units, a cost per order of 8:5 and a holding
cost per unit per year of 80?
A) 8:0;
B) 81,&55
!) 81,::;
") 8&,&67
$) 8&,055
Answer% $
7. A company has recorded the last five days of daily demand on their only product. Those
values are 1&5, 1&4, 1&0, 1&:, and 1++. The time from when an order is placed to when it
arrives at the company from its vendor is 4 days. Assuming the ,asic fied-order
#uantity inventory model fits this situation and no safety stoc1 is needed, which of the
following is the reorder point 23)?
A) 1&5
B) 1&6
!) 6+5
") ;45
$) 1,&55
Answer% !
:. The Pareto principle is ,est applied to which of the following inventory systems?
A) $.<
B) =ied-time period
!) AB! classification
") =ied-order #uantity
$) .ptional replenishment system
Answer% !
;. 9sing the AB! classification system for inventory, which of the following is a true statement?
A) The >!? items are of moderate dollar value
B) @ou should allocate a,out 14 A of the dollar volume to >B? items
!) The >A? items are of low dollar value
") The >A? items are of high dollar value
$) )nepensive and low usage items are classified as >!? no matter how critical
Answer% "
15. Which one of the following descriptions ,est defines the cycle-service level as a measure
of customer service?
a. The preferred proportion of annual demand instantaneously filled from stoc1
,. The num,er of stoc1outs tolerated per year
c. The preferred proportion of days in the year when an item is in stoc1
d. The desired pro,a,ility of not running out of stoc1 in any one inventory cycle
Answer% d
&
11. Which one of the following statements is ,est?
a. A P system re#uires more safety stoc1 than a Q system.
,. A P system lends itself more to #uantity discounts than does a Q system.
c. A P system re#uires more administrative control and computer support than does a Q
system.
d. )n a periodic review system, the value of Q is 1ept the same from one cycle to another.
Answer% a
1&. *ar1 )ncorporated is out of stoc1 for a 1ey item, which has a ,ac1order of &55 units. An
open order of 745 units is scheduled for arrival on the following Bonday. What is the
current inventory position at *ar1?
a. /ess than or e#ual to 5 units
,. Creater than 5 ,ut less than or e#ual to 455 units
c. Creater than 455 ,ut less than or e#ual to 745 units
d. Creater than 745 units
Answer: c
1+. =or an item under continuous review, the on-hand inventory is only &5 units and the
reorder point R is 155 units. There are no ,ac1orders, ,ut there is one open order for ;5
units. Which one of the following statements is T39$?
a. There is no need to order at the present time.
,. The current inventory position is 155 units.
c. An order should ,e placed now for &5 units.
d. An order should ,e placed now for 15 units.
Answer: a
10. The =ran1lin !ounty (ospital is currently using a continuous review system to control its
inventory. .ne of the items in inventory is an elastic ,and. The average demand for this
item is &55 ,oes per wee1, and the standard deviation in wee1ly demand is 45 ,oes. )f
the lead time is + wee1s and the hospital wants a ;; percent cycle-service level, what is
the reorder point for this item?
a. /ess than 645 ,oes
,. Creater than 645 ,oes ,ut less than 745 ,oes
c. Creater than 745 ,oes ,ut less than :45 ,oes
d. Creater than :45 ,oes
Answer: c
+
14. 9se the information in Ta,le 1. What is the economic order #uantity 2$.<) for this item?
a. /ess than 174 units
,. Creater than 174 units ,ut less than or e#ual to &55 units
c. Creater than &55 units ,ut less than or e#ual to &&4 units
d. Creater than &&4 units
a
16. 9se the information in Ta,le 1. What is the desired safety stoc1 level if the company has
a policy of maintaining a ;5 percent cycle-service level?
a. /ess than 45 units
,. Between 45 units and 155 units
c. Between 155 units and 145 units
d. Creater than 145 units
b
17. 9se the information in Ta,le 1. What is the reorder point if the company finally decides
to have a ;4 percent cycle-service level?
a. /ess than or e#ual to +55 units
,. Between +55 and +&4 units
c. Between +&4 and +45 units
d. Creater than +45 units
d
1:. A company has recorded the last five days of daily demand on their only product. Those
values are 1&5, 1&4, 1&0, 1&:, and 1++. The time from when an order is placed to when it
arrives at the company from its vendor is 4 days. Assuming the ,asic fied-order
#uantity inventory model fits this situation and no safety stoc1 is needed, which of the
following is the reorder point 23)?
A) 1&5
B) 1&6
!) 6+5
") ;45
$) 1,&55
Answer% !
0
Ta,le 1
A company operating under a continuous review system has an average demand of 45 units per
wee1 for the item it produces. The standard deviation in wee1ly demand is &5 units. The lead
time for the item is 6 wee1s, and it costs the company 8+5 to process each order. The holding
cost for each unit is 815 per year. The company operates 4& wee1s per year.
1;. )f it ta1es a supplier four days to deliver an order once it has ,een placed and the standard
deviation of daily demand is 15, which of the following is the standard deviation of usage
during lead time?
A) 15
B) &5
!) 05
") 155
$) 055
Answer% B
&5. A company wants to determine its reorder point 23). "emand is varia,le and they want to
,uild a safety stoc1 into 3. )f the average daily demand is 1&, the lead time is 4 days, the
desired >'? value is 1.;6, and the standard deviation of usage during lead time is +, which
of the following is the desired value of 3?
A) A,out 6
B) A,out 16
!) A,out 61
") A,out 66
$) A,out 7;
Answer% "
&1. A store has collected the following information on one of its products%
"emand D 15,555 unitsEyear
*tandard deviation of wee1ly demand D &4 units
.rdering costs D 8+5Eorder
(olding costs D 80EunitEyear
!ycle-service levelD ;4A
/ead time D & wee1s
Fum,er of wee1s per year D 45 wee1s
)f a firm uses the continuous review system to control the inventory, what would ,e the
order #uantity and reorder point?
Answer:
0
+5 ) 15555 2 & &
= =
H
DS
Q
opt
= +:7.+5 +:7 units
;: . &47 ;: . 47 55 . &55 &) 1.602&4 & 215555E45) = + = + = + =
L
z dL R
&4: units
&&. Assuming no safety stoc1, what is the re-order point 23) given an average daily demand of
155 units and a lead time of 4 days?
Answer% 455
&+. Why is it desira,le to classify items into groups, as the AB! classification does?
&0. What are the differences ,etween continuous review systems and periodic review systems?
&4. "istinguish ,etween dependent and independent demand along with an eample.
4