Test Database
Chapter 7 – Managing Supply Chain Inventories
True or False
1.
As the deviation in demand and supply decrease, the amount of safety stock
decreases.
a. True
b. False
2.
When demand is steady, cycle inventory and lot size are related as follows:
Cycle inventory = lot size × 2 = Q × 2.
a. True
b. False
3.
The primary purpose of cycle inventories is to leverage economies of scale.
a. True
b. False
4.
The FIFO cost method is best used for products that are perishable or have
short shelf lives.
a. True
b. False
5.
The goal of the inventory planner is to reduce the level of safety inventories
regardless of the impact on customer serviceability levels.
a. True
b. False
6.
As the size of the inventory grows, so does the capital investment.
a. True
b. False
7.
The larger the variety and volume of inventory transactions, the more critical
the control of inventory balances.
a. True
b. False
8.
Damaged and obsolete inventories are no longer part of inventory management.
a. True
b. False
2
9.
Aggregate inventory management involves the planning and control of all the
items a business stocks on an individual item-by-item basis.
a. True
b. False
10. A manufacturing company generally views inventories as a short-term risk.
a. True
b. False
Multiple Choice
11. All of these statements are considered to be primary objectives of an organization except:
a. optimizing use of resources
b. providing good customer service
c. increasing inventory
d. providing sufficient return on investment
12. Which of the following would be considered work-in-process (WIP) items?
a. items in a stockroom ready for sale to a customer
b. items in a raw materials/components warehouse
c. items that have been scrapped during production
d. components in queue ahead of a milling machine
13. Which of the following statements is most accurate about inventory management?
a. inventories and production must be managed together
b. inventory is not important at the production planning level
c. inventories are usually insignificant on the balance sheet
d. inventory does not cost much to carry
14. What is the name of materials used in the production process that do not become part of the product?
a. raw materials
b. work-in-process
c. finished goods
d. MRO items
15. Which of the following company objectives are in conflict?
a. maximum customer service and low-cost plant operation
b. low-cost plant operation and cash flow
c. maximum inventory investment and customer service
d. high cash flow and profitability
16. Which of the following equations is correct?
a. assets = liabilities – owner’s equity
3
b.
c.
d.
income = revenue – liabilities
owner’s equity = assets – liabilities
revenue = cost of goods sold – general and administrative expenses
17. Why is utilizing a cost-benefit trade-off so important when making inventory
decisions?
a. it enables planners to always minimize inventories at their lowest level
b. it enables planners to gauge how much to spend on inventory investment
c. it enables planners to always maximize customer service
d. it enables planners to correctly calculate inventory replenishment
18. Which of the following is not a reason for keeping inventory?
a. to allow for goods in transit
b. to build up stock for seasonal demand
c. to guard against errors in planning
d. to guard against uncertainty in supply and demand
19. Which of the following is an objective of marketing and sales in a typical organization?
a. capability to easily configure products to a unique specification
b. produce products in as large a lot size as is possible
c. ability to aggregate inventories for purchasing, manufacture, or storage
d. utilization of lean manufacturing practices
20. ________ demand is characteristics of manufacturers or distributors that service supply chain businesses subject to _______ demand.
a. dependent / independent
b. derived / independent
c. independent / derived
d. independent / dependent
21. Which of the following provides a buffer for seasonal demand?
a. lot-size inventory
b. fluctuation inventory
c. anticipation inventory
d. decoupling inventory
e.
22. In times of economic inflation which of the below inventory valuation methods is most likely to be used?
a. Standard cost
b. FIFO
c. LIFO
d. Average
3
4
23. A company has 9,000 units on hand and the annual usage is 48,000 units.
There are 240 working days in the year. What is the number of days supply?
a. 40 days
b. 25 days
c. 50 days
d. 45 days
24. Given the following percentage costs of carrying inventory, calculate the annual carrying cost if the average inventory is US$1 million. Capital costs are
10%, storage costs are 6%, and risk costs are 7%.
a. $230,000
b. $100,000
c. $200,000
d. $250,000
25. Items that are purchased or manufactured in quantities greater than needed
immediately create ________ inventories:
a. anticipation
b. lot-size
c. hedge
d. safety stock
26. Which of the following is NOT a cost of carrying inventory?
a. capital costs
b. storage costs
c. purchase costs
d. carrying costs
27. All of the following are reasons to keep inventory EXCEPT:
a. allow flexibility in production scheduling
b. couple supply with demand
c. meet fluctuations in product demand
d. provide a safeguard against delivery time variations
28. When demand is steady, cycle inventory and lot size are related as
a. cycle Inventory = lot size × 2
b. cycle Inventory = Q×2
c. cycle Inventory = Q/2
d. cycle Inventory = lot size = Q
29. Damage and shrinkage would most likely be found in which of these costs?
a. capital
b. risk
c. storage
d. service
5
30. Economies of scale in purchasing and ordering motivate a manager to
a. increase the lot size and cycle inventory
b. decrease the lot size and cycle inventory
c. match order quantity to demand
d. increase the lot size and reduce cycle inventory
Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
T
F
T
T
F
T
T
F
F
F
c
d
a
d
a
c
b
c
a
b
c
c
d
a
b
c
b
c
b
a
5