MGT613 Solved mcqs from Book Inventory Management

problems for Inventory Management:

1. When developing inventory cost models, which of the following are not included as costs to place
an order?

A) Phone calls

B) Taxes

C) Clerical

D) Calculating quantity to order

E) Postage

Answer: B

2. Which of the following is not included as an inventory holding cost?

A) Annualized cost of materials

B) Handling

C) Insurance

D) Pilferage

E) Storage facilities

Answer: A

3. Which of the following is not an assumption of the basic fixed-order quantity inventory model?

A) Ordering or setup costs are constant

B) Inventory holding cost is based on average inventory

C) Diminishing returns to scale of holding inventory

D) Lead time is constant

E) Demand for the product is uniform throughout the period

Answer: C
4. Assuming no safety stock, what is the re-order point (R) given an average daily demand of 50 units,
a lead time of 10 days and 625 units on hand?

A) 550

B) 500

C) 715

D) 450

E) 475

Answer: B

5. If annual demand is 12,000 units, the ordering cost is $6 per order and the holding cost is $2.50 per
unit per year, which of the following is the optimal order quantity?

A) 576

B) 240

C) 120.4

D) 60.56

E) 56.03

Answer: B

6. Using the economic order quantity model, which of the following is the total ordering cost of
inventory given an annual demand of 36,000 units, a cost per order of $80 and a holding cost per unit
per year of $4?

A) $849

B) $1,200

C) $1,889

D) $2,267
E) $2,400

Answer: E

7. A company has recorded the last five days of daily demand on their only product. Those values are
120, 125, 124, 128, and 133. The time from when an order is placed to when it arrives at the company
from its vendor is 5 days. Assuming the basic fixed-order quantity inventory model fits this situation
and no safety stock is needed, which of the following is the reorder point (R)?

A) 120

B) 126

C) 630

D) 950

E) 1,200

Answer: C

8. The Pareto principle is best applied to which of the following inventory systems?

A) EOQ

B) Fixed-time period

C) ABC classification

D) Fixed-order quantity

E) Optional replenishment system

Answer: C

9. Using the ABC classification system for inventory, which of the following is a true statement?

A) The “C” items are of moderate dollar value

B) You should allocate about 15 % of the dollar volume to “B” items

C) The “A” items are of low dollar value

D) The “A” items are of high dollar value

E) Inexpensive and low usage items are classified as “C” no matter how critical

Answer: D
10.Which one of the following descriptions best defines the cycle-service level as a measure of
customer service?

a. The preferred proportion of annual demand instantaneously filled from stock

b. The number of stockouts tolerated per year

c. The preferred proportion of days in the year when an item is in stock

d. The desired probability of not running out of stock in any one inventory cycle

Answer: d

11.Which one of the following statements is best?

a. A P system requires more safety stock than a Q system.

b. A P system lends itself more to quantity discounts than does a Q system.

c. A P system requires more administrative control and computer support than does a Q system.

d. In a periodic review system, the value of Q is kept the same from one cycle to another.

Answer: a

12.Sark Incorporated is out of stock for a key item, which has a backorder of 200 units. An open order
of 750 units is scheduled for arrival on the following Monday. What is the current inventory position at
Sark?

a. Less than or equal to 0 units

b. Greater than 0 but less than or equal to 500 units

c. Greater than 500 but less than or equal to 750 units

d. Greater than 750 units

Answer: c
13.For an item under continuous review, the on-hand inventory is only 20 units and the reorder
point R is 100 units. There are no backorders, but there is one open order for 90 units. Which one of
the following statements is TRUE?

a. There is no need to order at the present time.

b. The current inventory position is 100 units.

c. An order should be placed now for 20 units.

d. An order should be placed now for 10 units.

Answer: a

14.The Franklin County Hospital is currently using a continuous review system to control its inventory.
One of the items in inventory is an elastic band. The average demand for this item is 200 boxes per
week, and the standard deviation in weekly demand is 50 boxes. If the lead time is 3 weeks and the
hospital wants a 99 percent cycle-service level, what is the reorder point for this item?

a. Less than 650 boxes

b. Greater than 650 boxes but less than 750 boxes

c. Greater than 750 boxes but less than 850 boxes

d. Greater than 850 boxes

Answer: c
Table 1

A company operating under a continuous review system has an average demand of 50 units per
week for the item it produces. The standard deviation in weekly demand is 20 units. The lead time
for the item is 6 weeks, and it costs the company $30 to process each order. The holding cost for
each unit is $10 per year. The company operates 52 weeks per year.

15.Use the information in Table 1. What is the economic order quantity (EOQ) for this item?

a. Less than 175 units

b. Greater than 175 units but less than or equal to 200 units

c. Greater than 200 units but less than or equal to 225 units

d. Greater than 225 units

correct: a

16.Use the information in Table 1. What is the desired safety stock level if the company has a policy of
maintaining a 90 percent cycle-service level?

a. Less than 50 units

b. Between 50 units and 100 units

c. Between 100 units and 150 units

d. Greater than 150 units

correct: b

17.Use the information in Table 1. What is the reorder point if the company finally decides to have a
95 percent cycle-service level?

a. Less than or equal to 300 units

b. Between 300 and 325 units

c. Between 325 and 350 units

d. Greater than 350 units

correct:d

18. A company has recorded the last five days of daily demand on their only product. Those values are
120, 125, 124, 128, and 133. The time from when an order is placed to when it arrives at the company
from its vendor is 5 days. Assuming the basic fixed-order quantity inventory model fits this situation
and no safety stock is needed, which of the following is the reorder point (R)?

A) 120

B) 126

C) 630

D) 950

E) 1,200

Answer: C
19. If it takes a supplier four days to deliver an order once it has been placed and the standard
deviation of daily demand is 10, which of the following is the standard deviation of usage during lead
time?

A) 10

B) 20

C) 40

D) 100

E) 400

Answer: B

20. A company wants to determine its reorder point (R). Demand is variable and they want to build a
safety stock into R. If the average daily demand is 12, the lead time is 5 days, the desired “z” value is
1.96, and the standard deviation of usage during lead time is 3, which of the following is the desired
value of R?

A) About 6

B) About 16

C) About 61

D) About 66

E) About 79

Answer: D

21. A store has collected the following information on one of its products:

Demand = 10,000 units/year

Standard deviation of weekly demand = 25 units

Ordering costs = $30/order

Holding costs = $4/unit/year

Cycle-service level= 95%

Lead time = 2 weeks

Number of weeks per year = 50 weeks

If a firm uses the continuous review system to control the inventory, what would be the order quantity
and reorder point?

Answer:

= 387.30 387 units

258 units

22. Assuming no safety stock, what is the re-order point (R) given an average daily demand of 100
units and a lead time of 5 days?

Answer: 500

MGT613 Supply Chain Management Solved

MCQs from book
1 A supply chain is defined as the group of firms that provide all processes required
to make a finished product available to the customer.
A) True
B) False

2 SCM can include having suppliers actually on site producing products or services
in a manufacturers facility.
A) True
B) False

3 SCM suppliers should be viewed as "partners."

A) True
B) False

4 Wal-Mart's EDI system issues electronic purchase orders and receives electronic
invoices from virtually all of Wal-Mart's suppliers.
A) True
B) False

5 Which of the following is NOT a reason that companies are depending more on
their suppliers?
A) More focus on core competencies
B) Need for more flexibilities
C) Desire to share risks
D) More control over their suppliers
6 The trend in organizations is to place the SCM function:
A) Under the manufacturing function
B) Under the finance function
C) Under the engineering function
D) At the same level as the other major functions

7 Which of the following is NOT a factor impacting the supply chain?

A) Reduced number of suppliers
B) Increased competition
C) Longer product life cycles
D) Increased opportunities to strategically use technology

8 If two potential suppliers can deliver a part with the same quality and prices, the
selection should be based on:
A) Age of the firms
B) A coin flip
C) Outside evaluation
D) The capabilities and flexibilities of the firms

9 Just-in-time/SCM purchasing requires the following condition:

A) Many suppliers
B) Short-term contracts
C) Cooperation between purchasing and suppliers
D) Continuous competitive bidding

10 The amount of inventory kept at each stock point in a warehouse network is

usually based on:
A) Minimizing transportation costs
B) Constant demand
C) Tradeoffs between warehousing, inventory, and transportation costs
D) Product pricing strategy

11 Which of the following is NOT a benefit of SCM/JIT Purchasing?

A) Consistent quality
B) Savings on resources
C) Lower costs
D) Less dependence on suppliers

12 Purchased items account for approximately what % of costs of goods sold?

A) 30-40%
B) 40-50%
C) 50-60%
D) 60-70%
E) 70-80%

1.Who advocated the concept of “zero defects”?

  Edwards. Deming
 Joseph Juran
 Kaoru Ishikawa
 Philip Crosby

2. Which of the following is the origin of the term “Poka –Yoke”?

§America
§China
§Spain
§Japan
3. Which of the following is INCORRECT about TQM?

 Meeting the needs and expectations of customers

 Primarily a “worker” rather than a management activity
 Inclusion of every person in the organization
 Covering all the functional areas of the organization

4. Which of the following is a unit of measurement as specified in Six Sigma quality?

§Defects per hundred
§Defects per thousand
§Defects per hundred thousand
§Defects per million
5. Which of the following is a descriptive technique that is used by a decision maker
to evaluate the behavior of a model under various conditions?

 Linear programming
 Simulation
 Critical path method
 PERT

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6. EF stands for which of the following?

 Equal Finish
 Economic Finish
 Early Finish
 Easy Finish

7. Which of the following refers to unnecessary extension of the project scope that
hinders in-time completion of the project?

 Work creep
 Plan creep
 Scope creep
 Budget creep
8. Which of the following relates to monitoring the objectives of cost, time and
quality as the project progresses?

 Project estimating
 Project planning
 Project control
 Project crashing

9. Which one the following is focused to reduce the incidence of failures in the plant
or equipment to avoid the associated costs?

 Preventive maintenance
 Predictive maintenance
 Reactive maintenance
 Total productive maintenance

10. Which of the following refers to the length of time a job is in the shop at a
particular workstation?

 Job lateness
 Job flow time
 Make-span
 Slack time

1. Who introduced the use of statistical control charts for monitoring production?
a)G.S. Radford
b)Walter Shewhart
c)Frederick Taylor
d)Kaoru Ishikawa

2. Which of the following quality gurus advocated the “cost of quality” concept?
a)Edwards. Deming
b)Joseph Juran
c)Kaoru Ishikawa
d)Philip Crosby

3. If you go to dine out at McDonalds and you observe a very cool and pleasant
atmosphere over there. It depicts which of the following dimensions of
quality?
a)Performance
b)Aesthetics
c)Reliability
d)Conformance
4. Mr. Ali purchased a TV set. After a period of a year, the picture quality started
deteriorating. He went to the company and complained. The company
responded subsequently. Which of the following dimensions of quality would
come into play?
a)Reliability
b)Conformance
c)Serviceability
d)Aesthetics

5. Which of the following reflects the meaning of the word “Poka –Yoke”?
a)Mistake proof
b)Low quality
c)Defective
d)Expensive

6. Which one of the following denotes QFD?

a)Quality Function Development
b)Quality Foundation Development
c)Quality Foundation Deployment
d)Quality Function Deployment

7. Which of the following terms best defines the nature of Total Quality
Management?
a)An art
b)A philosophy
c)A science
d)A social activity

8. Which of the following terms reflects Japanese view of continuous

improvement?
a)Kaizen
b)Poka-yoke
c)Six sigma
d)Control limits

9. Which of the following is NOT an element of TQM?

a)Leadership
b)Perceived quality
c)Employee empowerment
d)Customer focus

10. Which of the following is an example of appraisal cost?

a)Rework costs
b)Returned goods
c)Testing labs
d)Quality improvement programs
 11. Warranty cost is an example of which of the following?
a)Internal failure cost
b)External failure cost
c)Prevention cost
d)Appraisal cost

12. Refer to the stage of PDCA (Plan, Do, Check, Act) cycle that involves
evaluating the improvement plan.
a)Plan
b)Do
c)Check
d)Act

13. Which of the following refers to a continuous measurement of an

organization’s products and processes against a company recognized as a
leader in that industry?
a)Benchmarking
b)Gap analysis
c)Statistical process control
d)Continuous improvement

14. Which of the following is the focus of statistical process control?

a)Determining the efficiency of an operations system
b)Measuring the amount of re-work required to rectify faulty goods
c)Identifying the security needs of an operations system
d)Measuring and controlling process variations

15. Which of the following is a measure of how closely a product or service meets
the specifications?
a)Quality of Conformance
b)Continuous improvement
c)Competitive benchmarking
d)Statistical process control

In terms of operations management the forecast which projects a company’s

sales is called:

Economic forecast
Technological forecast
Demand forecast
Associative model
Ref:
Demand forecasting is the activity of estimating the quantity of a product or
service that consumers will purchase. A demand forecast is the prediction of
what will happen to your company's existing product sales.
16. In which one of the following techniques, the least squares method models
uses one dependent and one or more independent variables?
Trend adjusted forecast
Simple moving average
Regression analysis
Exponential smoothing
Regression analysis that uses two or more independent variables to forecast values of
the dependent variable is called a multiple regression analysis.

The operational strategy must be in line with the:

Department goals
Organizational goals
Management goals
None of the above
Operational Strategy is:

 Narrower in scope and in more detail

 Prepared by middle management.
 Should be in line with the Organization strategy.

Which one of the following strategies specifies how the firm will employ its
production capabilities to support its corporate strategy?
Tactical
Operations
Manufacturing
Production
Ref:
Operations Management is concerned with managing the operations
strategy, which specifies how the firm will employ its production capabilities
to support its corporate strategy.
The systematic processing of data to yield information is a part of __________.
Management science
 Information sciences
Industrial engineering
Scientific management
Collaborative Planning, Forecasting, and Replenishment (CPFR) a Web based
tool used to coordinate demand forecasting, ____________ and inventory
replenishment between supply chain trading partners.
Production and purchase planning
Demand and supply planning
Quantitative forecasting
Demand management
Collaborative Planning, Forecasting, and Replenishment (CPFR) a Web-based
tool used to coordinate demand forecasting, production and purchase
planning, and inventory replenishment between supply chain trading
partners. You will learn about this in your later part of the semester.
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Parabolic, exponential and growth are element of:

Linear trends

Non linear Trends

Forecast accuracy

None of the above

Which of the following ensures that the design meets the performance
characteristics that are specified in the product concept?
Functional design
Production design
Service design
Product design
Functional design is ensuring that the design meets the performance
characteristics that are specified in the product concept.
The forecasting time horizon that would typically be easiest to predict would
be:
Medium-range
Long-range
Short-range
Intermediate range
Most of the organizations adopt a defensive design R&D Strategy in an
attempt to prolong the life of the product by employing new packaging,
redesigning it, improving its reliability. This is __________ phase in product life
cycle.
Growth
Maturity
Saturation
Decline
DECLINE: In this phase, most of the organizations adopt a defensive design
R&D Strategy in an attempt to prolong the life of the product by employing
new packaging, redesigning it, improving its reliability.
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The three major business functions necessary to all organizations are:
Accounting, personnel, operations
Marketing, finance/accounting, operations
Marketing, accounting, personnel
Marketing, finance, operations
As the time horizon increases the accuracy of the forecast:
Decreases
Increases
Is not affected with time horizon
None of the above
Forecast accuracy decreases as time horizon increases indicating it is safe
to make short range forecasts instead of long term forecasts.
Four important pillars capital, quality, ________ and technology. are
responsible for positively as well as negatively affecting on the Productivity
of the organization.
Customers
Process
System
Management
Productivity stands tall on four important pillars of Capital, Quality,
Management and Technology. These pillars are also responsible for
positively as well as negatively affecting the Productivity of the Organization.
Releasing products with defects should be informed to the customers. This
statement comes under ______ frame work.
Legal
Ethical
Environmental
None of the above
Ethical: Operations Manager should understand that he is under Contractual
agreement not to exhibit unethical behavior. Releasing products with defects
should be informed to the customers.
Sequence of data points that are measured typically at successive times at
regular time intervals is known as:
Moving average
Weighted moving average
Time series
Forecasts
In statistics, signal processing, econometrics and mathematical finance,
a time series is a sequence of data points, measured typically at
successive times spaced at uniform time intervals.
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Planning workforce requirements, scheduling of the equipment and financial
analysis are the major uses of__________.
Productivity ratios
Productivity Growth
Multifactor productivity
Operations strategy
Which one of the following is not a step of decision process:
Specify objectives
Determine the product of chance probabilities
Analyze and select alternative
Implement and monitor the result
The forecasting time horizon that would typically be easiest to predict would
be:
Medium-range
Long-range
Short-range
Intermediate range
_____ means that the relevant parameters such as cost, capacity and demand
have known values.
Risk
Certainty
Uncertainty
None of above
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The forecasting model that is based upon estimates of salesperson's
expected sales is likely to be called ________.
Delphi method
Sales force combination
Consumer market survey
Panel of executive opinion
Completion of any operations depends upon the slowest process in the
assembly line. What operations managers need to do in order to be
successful?
Target and eliminate bottlenecks
Identify the bottlenecks
Make slowest process more slow
Non of the above