Unit 4 – Inventory Management

1. To reduce inventory management costs, many companies use a system called

_, which involves carrying only small inventories of parts or
merchandise, often only enough for a few days of operation.

a) Reduction-inventory Management
b) Supply Chain Management
c) Economic Order Quantity
d) Just-in-time Logistics .

2. Costs that continue even if no units are produced are called

a) Variable costs.
b) Mixed costs.
c) Marginal costs.
d) Fixed costs. .

3. A lot-sizing technique that generates exactly what was required to meet the
plan is
a) The Wagner-Whitin algorithm.
b) Economic order quantity.
c) Lot-for-lot.
d) Part period balancing. .
4. An example of purchasing costs include
a) Incoming Freight
b) Storage Costs
c) Insurance
d) Spoilage
5. If demand of one year is 25000 units, relevant ordering cost for each purchase
order is INR 210 and carrying cost of one unit of stock is INR 25 then economic
order quantity is
a) 678 packages
b) 658 Packages
c) 668 Packages
d) 648 packages .
6. Activities related to coordinating, controlling and planning activities of
flow of inventory are classified as
a) Decisional Management
b) Throughput Management
c) Inventory Management
d) Manufacturing Management .

7. Required rate of return is multiplied per unit cost of purchased units for
calculating

a) Irrelevant Inventory Carrying Costs

b) Relevant Opportunity Cost Of Capital

c) Relevant Purchase Order Costs
d) Relevant Inventory Carrying Costs .

8. Costs associated with storage of finished goods such as spoilage, obsolescence

and insurance of goods are classified as
a) Carrying Costs
b) Purchasing Costs
c) Stock-out Costs
d) Ordering Costs .

9. Costs of goods are acquired from suppliers is classified as…

a) Stock-out Costs
b) Ordering Costs
c) Carrying Costs

d) Purchasing Costs .

10. If economic order quantity for one time is 15000 packages and demand in
units for one year are 15000 units then number of deliveries in a year will be
a) 16
b) 12
c) 10
d) 14 .
11. Decision model to calculate optimal quantity of inventory to be ordered
is called

a) Efficient Order Quantity

b) Economic Order Quantity

c) Rational Order Quantity
d) Optimized Order Quantity .

12. A regular check on Book entry and physical stocks in hand must be
done to..
a) Place the order

b) To check exact availability of stocks

c) To decide the reorder point
d) To control the stock movement .

13. Inventory carried for the purpose of providing flexibility to each decision-
making unit
to manage its operations independently is known as….
a) Safety inventory
b) Pipeline inventory
c) Decoupling inventory
d) Cycle inventory .

14. The inventory which is dependent on alternative modes of transportation is

known as
a) Decoupling inventory
b) Pipeline inventory
c) Safety inventory
d) Cycle inventory .
15. In an automobile manufacturing facility, the management has brought down
the cost of ordering of automotive components from Rs 500 to Rs 50 through the
introduction of electronic ordering. The annual demand of cars is 15,000 units.
Inventory carrying cost of automotive components is Rs 20 per unit per year. The
inventory turnover ratio in both the cases would be
a) 35.64 and 111.48
b) 36.64 and 112.48
c) 33.64 and 107.48

d) 34.64 and 109.48 .

16. Higher demand uncertainty provides higher savings by pooling which

of the following inventory?
a) Safety inventory
b) Pipeline inventory
c) Decoupling inventory
d) Cycle inventory .

17. Which of the following is true for inventory control

a) EOQ has minimum totals costs per order

b) Inventory Carrying cost increases with quantity/order

c) Ordering cost decreases with increase in quantity/order
d) All of the above .

18. The time period between placing the order and receiving the placed order
is called as..
a) Waiting Time
b) Takt Time

c) Cycle Time
d) Lead Time .
19. A firm's inventory turnover (IT) is 5 times on a cost of goods sold (COGS) of
$800,000. If the IT is improved to 8 times while the COGS remains the same, a
substantial amount of funds is released from or additionally invested in
inventory. In fact,
a) $160,000 is released
b) $60,000 is released.
c) $100,000 is additionally invested.
d) $60,000 is additionally invested .

20. If EOQ = 360 units, order costs are $5 per order, and carrying costs are $.20
per unit, what is the annual usage in units?
a) 129,600 units
b) 25,920 units
c) 2,592 units

d) 18,720 units

21. Costs of not carrying enough inventories include

a) Lost Sales

b) Customer Disappointment

c) Possible Worker Layoffs

d) All of the above .

22. Receiving a required inventory item at the exact time needed.

a) ABC Analysis

b) JIT
c) FOB
d) PERT .

23. The two basic questions in inventory management are how much to order
and when to order.
a) True
b) False .
24. Using the EOQ model, if an item's holding cost increases, its order
quantity will decrease.
a) True
b) False .

25. With the A-B-C approach, items which have high unit costs are classified as
A items.
a) True
b) False .

26. When using EOQ ordering, the order quantity must be computed in
every order cycle.
a) True
b) False .

27. Holding and ordering costs are inversely related to each other..
a) True
b) False .

28. In the basic EOQ model, annual ordering cost and annual ordering cost are
equal for the optimal order quantity.
a) True
b) False .

29. Increasing the order quantity so that it is slightly above the EOQ would
not increase the total cost by very much.
a) True
b) False .

30. The first activity of purchasing cycle is..

a) Source Selection & Negotiation

b) Communicating the Requirement to the Suppliers

c) Recognizing the need of Procurement
d) Inspection of the Goods .
31. Raw Materials & WIP can be classified as
a) Direct Materials
b) Indirect Materials
c) Finished Materials

d) Standard Materials .

32. Which of the following is a function of inventory?

a) to provide a stock of goods that will provide a selection for
customers
b) to take advantage of quantity discounts

c) to hedge against inflation

d) all of the above are functions of inventory .

33. All of the following statements about ABC analysis are true except
a) inventory may be categorized by measures other than dollar volume

b) it categorizes on-hand inventory into three groups based on annual

dollar volume

c) it is an application of the Pareto principle

d) it states that all items require the same degree of control .

34. Which of the following statements about the basic EOQ model is true?
a) If the ordering cost were to double, the EOQ would rise.
b) If annual demand were to double, the EOQ would increase.
c) If the carrying cost were to increase, the EOQ would fall

d) All of the above statements are true. .

35. Which of the following statements about the basic EOQ model is false?
a) If the setup cost were to decrease, the EOQ would fall.
b) If annual demand were to increase, the EOQ would increase.
c) If the ordering cost were to increase, the EOQ would rise.

d) If annual demand were to double, the EOQ would also double. .

36. Extra units that are held in inventory to reduce stock- outs are called
a) Just-in-time inventory.

b) Reorder point.
c) Demand variance.
d) Safety stocks. .

37. Which of the following is NOT a type of inventory?

a) MRP
b) Finished goods
c) Raw material

d) Work-in-process .

38. A system that triggers ordering on a uniform time basis is called a_

a) Fixed-quantity Order system.
b) Reorder point Order system.
c) Fixed-period Order system.
d) EOQ. .

39. Logistic network through which unwanted or excess products by

resellers or consumers is classified as
a) Inbound Distribution
b) Outbound Distribution
c) Forward Distribution

d) Reverse Distribution .

40. Pareto charts are used to

a) Identify Inspection Points In A Process
b) Outline Production Schedules

c) Organize Errors, Problems Or Defects

d) Show Material Flow .
41. Each of the following is an objective regarding inventories except

a) Providing Customer Service

b) Providing Efficiencies in Production
c) Keeping investment as low as possible
d) Keeping available space filled

42. Safety stocks would most likely be necessary for which of the following
types of inventory

a) Finished Goods
b) Work – in – Process
c) Semi finished goods
d) Raw material
43. Inventory that results from decisions regarding the quantity of goods to be
produced or manufactured in each cycle may be called:

a) Safety Stock
b) Lot – Size Stock
c) Anticipation Stock
d) Pipeline Stock

44. The most significant consequence of stock out is

a) Back Order
b) Financial Penalty
c) Lost Customer
d) Impact on the performance of Sales Executive

45. ABC Classification of inventory is a means to categorize materials in terms

of their
a) Function
b) Type of material
c) Annual usage value
d) Storage requirement

46. Which of the following inventory control methods is more appropriate for
items with dependent demand than for items with independent demand?

a) Reorder Point
b) ABC Analysis
c) Time Phased Order Point
d) Material Requirement Planning (MRP)
47. Which of the following are costs of “Carrying” inventory:

a) Capital costs and production control costs

b) Capital costs and storage costs
c) Production control costs and purchase costs
d) Storage costs and purchasing costs

48. The EOQ model with quantity discounts attempts to determine

a) How many units should be ordered

b) What is the lowest amount of inventory necessary to satisfy a certain
service level
c) What is the lowest purchasing price
d) Whether to use fixed-quantity or fixed period order policy

49. FSN Analysis is used to sort the inventory according to

a) Value
b) Usage tenure
c) Usage value
d) Importance

50. In GOLF analysis „O” denotes

a) Other than government supply

b) Open supply
c) Original supplier
d) Optimal supply