Question

1. ABC analysis is based upon the principle that

A) all items in inventory must be monitored very closely.

B) more time should be spent on class "C" items because there are more of them.

C) an item is critical if its usage is high.

D) there are usually a few critical items, and many items which are less critical.

E) as with grade distributions in many undergraduate courses, there should be more medium-level "B" items than either “A” or "C” items.

 2. The graph below plots two different types of costs as a function of the order quantity in the EOQ

 model. Line B is a plot of the

 A) Shortage Costs

 B) Demand

 C) Order Costs

 D) Carrying or Holding Costs

Answer 1

Answer: there are very few critical items, and many items which are less critical.

In ABC analysis, critical items are decided based on the total usage value where unit cost and quantities are taken into account. So, in this case, more number of items are considered to be less critical based on 80:20 rule.

Answer: Ordering cost

Ordering cost reduces when the order quantity increases. In Economic Order Quantity, optimal order quantity needs to be considered. ordering quantity declines with increase in order quantity and holding cost increases with respect to increase in the order quantity.