Question

1. Ordering cost only consists of the shipping cost from supplier to customer.

True or False

2. Ordering cost is which type of cost?

Multiple Choice

Fixed

Variable

Overhead

3.

Which of the following would be considered part of Ordering Cost? (choose all that apply)

Check All That Apply

Minimum shipping chargeMinimum shipping charge

Postage to mail the order to a supplier (who still lives in the early 20th century)Postage to mail the order to a supplier (who still lives in the early 20th century)

Renting a truck to haul the order (and only this order, no other business is used for this truck’s one time rental)Renting a truck to haul the order (and only this order, no other business is used for this truck’s one time rental)

Cost of the office building housing your employees.

4.

Safety stock is inventory held to guard against uncertainty

True or False

5.

Which two things drive the need for safety stock? (choose two)?

Check All That Apply

Demand variabilityDemand variability

Warehouse spaceWarehouse space

DelaysDelays

Manufacturing speedManufacturing speed

Customer choice

6.

The “right” amount of safety stock is often a function of Service Level. Service Level is:

Multiple Choice

The probability of making the right product

The probability of delay

The probability of meeting demand during a delay

The probability of delay causing more demand

7.

The standard deviation of demand during lead time is the same whether or not lead time is variable.

True or False

8.

Finding average demand during lead time involves doing which of the following?

Multiple Choice

Squaring average demand per day and summing

Summing the square root of average demand per day and summing

Summing the daily average demand per day

Integrating average daily demand from zero to four

9.

Since standard deviations don’t sum, we have to sum which thing instead?

Multiple Choice

Average

Median

Kurtosis

Variance

10.

When lead time and demand are both variable, the formula we use consists of which two parts? (select two)

Check All That Apply

Demand variabilityDemand variability

Lead time variabilityLead time variability

Order period variabilityOrder period variability

Accounting irregularities

11.

The P-system of inventory submits inventory orders at random times.

True or False

12.

What is another name for the “P-system” of inventory?

Multiple Choice

Partial Request Inventory Order System

Poorly Routed Inventory Ordering System

Particularly Responsive Complicated Ordering System

Periodic Review Inventory System

13.

What are the two main challenges of the P-system? (select two)

Check All That Apply

Unhappy customersUnhappy customers

Length of review periodLength of review period

Figuring out when to orderFiguring out when to order

ComputersComputers

Amount of inventory to have

14.

What is the great benefit of the P-system?

Multiple Choice

A name that is easy to remember

Customer satisfaction is guaranteed

Simplicity in managing the system

Complicated mathematical requirements

15.

An offered discount makes no change to determining optimal order quantity.

True or False

16.

Which of the following statements is true when comparing the total cost curve for a product without discounting and the total cost curve with discounting?

Multiple Choice

The discounted curve is always below the undiscounted curve

The undiscounted curve is always below the discounted curve

The discounted curve is always below the undiscounted curve but does not really exist for values less than the minimum order amount to receive the discount.

The undiscounted curve is always below the discounted curve but does not really exist for values less than the minimum order amount to receive the discount.

17.

If I calculate the EOQ with the new, discounted material cost and the resulting quantity is enough to get the discount, what should I do?

Multiple Choice

Order the discounted EOQ amount

Order the regular EOQ amount

Average the discounted and undiscounted EOQ amounts and order that

Compare total costs of the two EOQ amounts

18.

In the end, the point of using the EOQ formula is to:

Multiple Choice

Properly enter the values we have calculated

Identify the number that is best under any condition

Point us toward the possible lowest cost option

Keep people who create math models employed

Answer 1

1.

[FALSE]

Ordering cost can be anything that is fixed with the order and the value of it is independent of order size. For example, the cost of creating purchase orders (printing, entering data, cross-checking etc.) is also included in ordering cost.

2.

Ordering cost is a Fixed cost because it is independent of the order size.

3.

The following should be considered ordering cost because they are incurred while an order in placed independent of the order size.

• Minimum shipping charge.
• Postage to mail the order to a supplier (who still lives in the early 20th century)
• Renting a truck to haul the order (and only this order, no other business is used for this truck’s one-time rental)

4.

[TRUE]

Safety stock provides with the buffer against variation in demand during the lead time and in the lead time itself.

5.

• Demand variability
• Delay

6.

Service level is the probability of meeting demand during a delay (lead time).

7.

[FALSE]

The StDev of lead time demand is a function of i) average demand, ii) StdDev of demand, iii) average lead time and iv) StDev of lead time.

8.

Summing the daily average demand per day for the lead time (in days) will give the average lead time demand.

9.

Variance

Variance is the square of StDev can be summed up.

10.

The formula will consist of two parts

• Demand variability
• Lead time variability

11.

[FALSE]

P-system is a fixed-period ordering system. The orders are placed at fixed intervals.

12.

Periodic Review Inventory System