Question

1)

______ demand items are typically ______ whose demand is determined primarily by ______ conditions.

		Dependent; finished goods; internal
		Independent; raw materials; internal
		Independent; finished goods; external
		Dependent; raw materials; external

2)

Which of the following is an assumption of the EOQ model?

		Orders are received in multiple shipments.
		Multiple products are involved.
		Lead time is constant and given.
		Shortages are allowed.

3)

The optimal ordering amount for companies that order seasonal items should achieve a balance between ______ and ______ costs.

		stock-out; excess inventory
		holding; ordering
		stock-out; ordering
		holding; excess inventory

4)

The ______ is the amount to which the inventory of an item should fall before the firm places a new order to replenish it.

		reorder point
		economic point
		order point
		review point

5)

The two fundamental questions in inventory management are ______ and ______ to order.

		when; where
		what; where
		what; how much
		when; how much

Answer 1

1. C. Independent; finished goods; external

The demand of dependent demand items is derived from finished goods and it it managed by internal MRP system.

While, demand of independent demand items is the demand for finished goods and determined by external factors. The demand of independent demand items cannot be internally controlled.

2. Lead time is constant and given.

Following are the assumptions of the EOQ model:

1. Demand is constant
2. Lead time is known and constant
3. Inventory receipt is instantaneous
4. Quantity discount is not possible.
5. THe costs pertaining to inventory model are: cost of placing an order and holding costs.

3. stock-out; excess inventory

Seasonal items must be purchased as per demand or requirement. It must be ensured that neither stock-out not excess inventory situation is reached. Stock-out would mean the firm would loose opportunity to sell and may not be able to suffice the requirement. On the other hand, excess inventory would result is loss of money in terms of wastage, spoilage, inventory costs, etc.

4. reorder point

The reorder point is an indication for re-ordering of material to ensure necessary stock is obtained and maintained.

5. when; how much

The inventory management must ensure material is purchased as per requirement, at the time of requirement. Thus, when to order or reorder and how much material should be ordered/reordered are the important questions w.r.t. inventory management