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Exam 13: Inventory Management

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Question 21

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Product deterioration,spoilage,breakage,and obsolescence are examples of shortage costs.

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Question 22

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Annual demand for a product is 40,000 units.The product is used at a constant rate over the 365 days the company is open every year.The annual holding cost for the product is estimated to be $2.50 per unit and the cost of placing each order is $125.00.If the company orders according to the economic order quantity (EOQ) formula then its optimal order size for this product would be

A) 2,000 units.
B) 4,000 units.
C) 20,000 units.
D) 40,000 units.

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Question 23

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Finished product is an example of a dependent demand item.

Dependent demand items are typically products for use by the final customer.

A restaurant currently uses 62,500 boxes of napkins each year at a constant daily rate.The cost to order napkins is $200.00 per order and the annual carrying cost for one box of napkins is $1.00.If the restaurant orders the economic order quantity then the average inventory for napkins is

Carrying costs are more difficult to determine than ordering or shortage costs.

With the economic order quantity (EOQ)model ,the number of orders increases as the order size decreases.

In ABC analysis,each class of inventory requires different levels of inventory monitoring and control.

Continuous inventory systems are primarily intended for lower cost items because they are easier to use requiring fewer resources.

Inventory management is concerned with how much to order and when to order.

Class A items in the ABC classification system require less monitoring and control than Class C items.

Receiving,handling and shipping costs are examples of

The number of orders can be calculated by dividing the daily demand rate,d,by the order quantity,Q.

___________ demand items are used in the process of producing a final product.

The EOQ model determines the optimal order size that minimizes the sum of carrying cost and shortage costs.

A service level of 95% means there is a 0.95 probability

Continuous inventory systems are also referred to as a fixed-order-quantity system.

A continuous inventory system is also known as a

Briefly compare and contrast a continuous inventory system to a periodic inventory system listing the advantages and disadvantages of each.

The periodic inventory system is often preferred for high quantity,low value items.