Introduction to Management Science, 11e (Taylor)

Chapter 16 Inventory Management

1) Independent demand items are used internally to produce a final product.

Answer: FALSE
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: dependent demand items

2) Dependent demand items are final products demanded by an external customer.

Answer: FALSE
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: independent demand items

3) Inventory costs include carrying, ordering, and shortage costs.

Answer: TRUE
Diff: 1 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: inventory costs

4) The purpose of inventory management is to determine how much and when to order.
Answer: TRUE
Diff: 1 Page Ref: 756
Section Heading: Elements of Inventory Management
Keywords: inventory management

5) In a continuous inventory system, a constant amount is ordered when inventory declines to a

predetermined level.
Answer: TRUE
Diff: 2 Page Ref: 756
Section Heading: Inventory Control Systems
Keywords: inventory control systems, continuous inventory system

6) In a periodic inventory system, a constant amount is ordered when inventory declines to a

predetermined level.
Answer: FALSE
Diff: 2 Page Ref: 757
Section Heading: Inventory Control Systems
Keywords: continuous inventory system

7) The EOQ is the optimal order quantity that will minimize total carrying costs.
Answer: FALSE
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: economic order quantity models, EOQ models

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8) Assumptions of the basic EOQ model include constant demand, no shortages, constant lead time, and
instantaneous replenishment.
Answer: TRUE
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: economic order quantity models, EOQ models

9) The noninstantaneous receipt model applies only to manufacturing.

Answer: FALSE
Diff: 3 Page Ref: 763
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: EOQ Model with noninstantaneous receipt

10) The EOQ model with shortages does not allow backorders.
Answer: FALSE
Diff: 3 Page Ref: 766
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages

11) The basic EOQ model plays no role in determining order sizes in the presence of quantity discounts.
Answer: FALSE
Diff: 2 Page Ref: 771
Section Heading: Quantity Discounts
Keywords: EOQ model quantity discounts

12) Quantity discounts are always evaluated with carrying cost as a percentage of price.
Answer: FALSE
Diff: 2 Page Ref: 772
Section Heading: Quantity Discounts
Keywords: EOQ model quantity discounts

13) The service level is the probability that the inventory available during lead time will meet demand.
Answer: TRUE
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: service level, safety stocks

14) If service level is 50%, then safety stock is equal to 50% of lead time demand.
Answer: FALSE
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: safety stock, service level

15) The reorder point is the date when a new order should be placed.
Answer: FALSE
Diff: 1 Page Ref: 775
Section Heading: Reorder Point
Keywords: reorder point

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16) If lead time and demand are constant, safety stock is equal to demand multiplied by lead time.
Answer: FALSE
Diff: 1 Page Ref: 776
Section Heading: Reorder Point
Keywords: safety stock
AACSB: Analytic skills

17) Periodic inventory systems normally require smaller safety stock than a continuous inventory
system.
Answer: FALSE
Diff: 2 Page Ref: 780
Section Heading: Order Quantity for a Periodic Inventory System
Keywords: periodic inventory system

18) A periodic inventory system has constant order sizes and order intervals.
Answer: FALSE
Diff: 2 Page Ref: 780
Section Heading: Order Quantity for a Periodic Inventory System
Keywords: periodic inventory system, fixed time period inventory system

19) If all of the assumptions for the basic EOQ model are met, the fixed-period model will behave
exactly like the EOQ model.
Answer: TRUE
Diff: 2 Page Ref: 780
Section Heading: Order Quantity for a Periodic Inventory System
Keywords: periodic inventory system, fixed time period inventory system
AACSB: Analytic skills

20) Carrying costs include storage cost, interest, and depreciation.

Answer: TRUE
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: inventory costs

21) Ordering costs include transportation, shipping, and inspection.

Answer: TRUE
Diff: 2 Page Ref: 755
Section Heading: Elements of Inventory Management
Keywords: inventory costs

22) Shortage costs include loss of customer goodwill.

Answer: TRUE
Diff: 2 Page Ref: 756
Section Heading: Elements of Inventory Management
Keywords: inventory costs

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23) If a business frequently runs out of inventory, their service levels are negative.
Answer: FALSE
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: service level
AACSB: Analytic skills

24) The service level is the probability that the inventory available during the lead time will meet the
demand.
Answer: TRUE
Diff: 1 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: service level, safety stocks

25) The lower the service level, the greater the probability of a stockout.
Answer: TRUE
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: service level, safety stocks
AACSB: Analytic skills

26) Service level is positively correlated with the size of the buffer stock.
Answer: TRUE
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: service level, safety stocks
AACSB: Analytic skills

27) ________ demand items are generally final products demanded by customers.
Answer: Independent
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: independent demand items

28) The purpose of inventory management is to determine ________ and ________ to order.
Answer: how much, when
Diff: 2 Page Ref: 756
Section Heading: Elements of Inventory Management
Keywords: inventory management

29) ________ demand items are used internally to produce a final product.
Answer: Dependent
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: independent demand items

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30) Inventory ________ costs include storage cost and the cost of capital.
Answer: carrying
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: carrying cost

31) Inventory ________ costs include transportation and inspection.

Answer: ordering
Diff: 2 Page Ref: 755
Section Heading: Elements of Inventory Management
Keywords: ordering costs

32) A ________ occurs when customer demand cannot be met and the sale is lost because of insufficient
inventory.
Answer: shortage or stock out
Diff: 2 Page Ref: 766
Section Heading: The EOQ Model with Shortages
Keywords: shortage or stock out costs

33) In a ________ inventory system, a constant amount is ordered when inventory declines to a
predetermined level.
Answer: continuous
Diff: 2 Page Ref: 756
Section Heading: Inventory Control Systems
Keywords: continuous inventory system

34) In a ________ inventory system, an order is placed for a variable amount after a fixed passage of
time.
Answer: periodic
Diff: 2 Page Ref: 757
Section Heading: Inventory Control Systems
Keywords: periodic inventory system

35) ________ is the optimal order quantity that will minimize the total inventory costs.
Answer: EOQ or economic order quantity
Diff: 1 Page Ref: 758
Section Heading: Economic Order Quantity Models
Keywords: economic order quantity, EOQ

36) A ________ occurs when an item is out of stock and is sold to the customer when a shipment
arrives.
Answer: backorder
Diff: 2 Page Ref: 766
Section Heading: The EOQ Model with Shortages
Keywords: economic order quantity model, EOQ model assumptions

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37) Costs involved in a typical inventory model include ________ and ________.
Answer: carrying costs, ordering costs
Diff: 1 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: EOQ model, average inventory

38) In the basic EOQ model, as the size of the order increases, the annual ________ cost decreases.
Answer: ordering
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model inventory costs, ordering costs

39) In the basic EOQ model, the amount ordered is received in ________ shipment(s).
Answer: one
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model

40) The objective of the basic EOQ model is to ________.

Answer: minimize costs
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model

41) In the basic EOQ model, as the size of the order increases, the annual ________ cost increases.
Answer: carrying
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model, inventory costs, carrying costs

42) In the quantity discounts model, the ________ must be included in the total cost calculation. This
variable is not included in the basic EOQ model.
Answer: purchase price
Diff: 2 Page Ref: 771
Section Heading: Quantity Discounts
Keywords: quantity discounts

43) If all the variables are held constant, the total inventory cost in a noninstantaneous receipts model is
________ than the total cost in the basic EOQ model.
Answer: larger or higher
Diff: 3 Page Ref: 763
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: production lot size model, non-instantaneous receipts model

44) The ________ determines when an order should be placed for a continuous review inventory
system.
Answer: reorder point
Diff: 1 Page Ref: 775
Section Heading: Reorder Point
Keywords: reorder point
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45) The reorder point will ________ if lead time increases and demand per day remains the same.
Answer: increase
Diff: 1 Page Ref: 775-776
Section Heading: Reorder Point
Keywords: reorder point, safety stock, service level

46) If demand per day or lead time are not constant, then the reorder point must include a level of
inventory called ________.
Answer: safety stock
Diff: 1 Page Ref: 775-776
Section Heading: Reorder Point
Keywords: reorder point, safety stock, service level

47) When viewing a plot of inventory level against time, the distance on the time axis from when an
order has been placed to when it is received is ________.
Answer: lead time
Diff: 1 Page Ref: 775-776
Section Heading: Reorder Point
Keywords: reorder point, safety stock, service level

48) ________ is inventory that is used to help protect against stockouts.

Answer: Safety stock
Diff: 1 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: safety stock

49) ________ is the probability that the inventory available during the lead time will meet demand.
Answer: Service level
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: service level

50) If lead time and demand are constant then ________ is zero.
Answer: safety stock
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: safety stock
AACSB: Analytic skills

51) For the ________ inventory system, Q, the quantity ordered, can vary.
Answer: periodic
Diff: 2 Page Ref: 757
Section Heading: Inventory Control Systems
Keywords: periodic inventory system

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52) The EOQ model is ________ , or resistant to errors in the cost estimates and demand.
Answer: robust
Diff: 2 Page Ref: 761
Section Heading: Economic Order Quantity Models
Keywords: economic order quantity, EOQ

53) ________ costs and ________ costs react inversely to each other in response to an increase in order
size.
Answer: Carrying, ordering
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: inventory costs

54) The basic EOQ model assumes that ________ is known with certainty and is relatively constant over
time.
Answer: demand
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: EOQ model, econ order quantity models, assumption of EOQ models

55) In the basic EOQ model, if D=80 per month, Co=$13, and Cc=$11 per unit per month, what is the
EOQ?
Answer: 13.75
Diff: 1 Page Ref: 762
Section Heading: Economic Order Quantity Models
Keywords: EOQ model, economic order quantity models
AACSB: Analytic skills

56) In the basic EOQ model, if D=40 per month, Co=$9, and Cc=$8 per unit per month, what is the
EOQ?
Answer: 9.49
Diff: 1 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity models
AACSB: Analytic skills

57) In the basic EOQ model, if D=100 per month, Co=$20, and Cc=$15 per unit per month, what is the
EOQ?
Answer: 16.33
Diff: 1 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity models
AACSB: Analytic skills

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58) In the basic EOQ model, if annual demand is 50 units, carrying cost is $2 per unit per year, and
ordering cost is $15, what is the EOQ?
Answer: 27.39
Diff: 2 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity models
AACSB: Analytic skills

A company produces item Y, and uses the basic EOQ model for managing its inventory. Lead time to
obtain item Y is two weeks. Demand is normally distributed with a mean of 400 units per week and a
standard deviation of 40 units per week. The desired service level is 98.5%. The ordering cost is $20,
and carrying cost is 20% of the items cost, which is $10.

59) Determine the order quantity for product Y. (Assume 52 weeks of operation per year.)
Answer: 644.98
Diff: 2 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model, EOQ model
AACSB: Analytic skills

60) Determine the annual setup cost and the annual carrying cost for product Y for the economic order
quantity. (Assume 52 weeks of operation per year.)
Answer: $1289.96 for both; $644.98 each
Diff: 2 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: the annual setup cost, economic order quantity models
AACSB: Analytic skills

61) Determine the total annual inventory cost for product Y. Include the item cost in your calculations.
(Assume 52 weeks of operation per year.)
Answer: $209,290
Diff: 2 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: the annual setup cost, economic order quantity models
AACSB: Analytic skills

62) Determine the reorder point for product Y.

Answer: 922.75
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: economic order quantity models, reorder point
AACSB: Analytic skills

9
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
Kushie's Coffee in Bangalore is a quaint establishment nestled near MG Road in the central business
district. It serves coffee and fruit cake to a clientele that has been enjoying these products for over fifty
years. The demand for coffee beans is 6600 cases per year (each case has 24 ten-pound bags). It would
be disastrous for them to run out of coffee, so they keep a safety stock of 30 cases. The cases cost $4800
and it costs $5 per case to order coffee. As coffee is a perishable product, the holding cost is fairly high
at $40/case/year. The lead time to receive an order is seven days. Kushie's is open 300 days a year.

63) What is the optimal order quantity for Kushie's Coffee?

Answer: 40.62 cases
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model
AACSB: Analytic skills

64) How many orders per year does Kushie's place if they order a cost minimizing quantity?
Answer: 162.48 orders/year
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model
AACSB: Analytic skills

65) What is their cost for holding all types of inventory if they order optimally?
Answer: Annual holding cost (812.4) plus holding safety stock (1200) comes to $2012.40.
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model
AACSB: Analytic skills

66) What is their total policy cost (including cost of goods) if they order at the EOQ amount?
Answer: $31,682,820. Wow, you'd never guess it was that high if you saw this place!
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model
AACSB: Analytic skills

67) What is the reorder point for Kushie's if they reorder a quantity twice as high as their EOQ?
Answer: 184 units
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model
AACSB: Analytic skills

10
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
The injection molding department of Alver Inc. uses an average of 40 pounds of a special powder per
day. The plant operates 250 days per year. The daily usage of the powder is normally distributed with a
standard deviation of 5 pounds per day. The lead time to obtain the powder from a supplier is 9 days.
The annual holding cost is $2 per unit and the cost of ordering the powder is $50.

68) How many units should Alver Inc. order in order to minimize annual ordering and carrying cost?
Answer: 707.11
Diff: 2 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: economic order quantity
AACSB: Analytic skills

69) How many orders will be placed each year?

Answer: 14.14 orders
Diff: 2 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model, number of orders
AACSB: Analytic skills

70) Determine the reorder point for a service level of 97%.

Answer: 388.2 units
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: reorder point, service level
AACSB: Analytic skills

The daily sales of a peanut butter at Power’s Grocery are normally distributed, with a mean of 12 jars
and a standard deviation of 4. The manager checks the inventories on shelves and places an order every
three days. Delivery lead time is two days.

71) How much safety stock of peanut butter should they have for a 99% service level?
Answer: Z = 2.33, r = 3, and L = 2
SS = 2.33 (4)(5)1/2 = 20.8 or 21 jars
Diff: 2 Page Ref: 778
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: payoff table
AACSB: Analytic skills

72) If there are four jars on the shelf when an order is placed, how much should the store order?
Answer: Base stock level = (tb + L) + safety stock = 12(5) + 21 = 60 + 21 = 81.
Order quantity = 81 - 4 = 77 jars.
Diff: 2 Page Ref: 780
Section Heading: Order Quantity for a Periodic Inventory System
Keywords: payoff table
AACSB: Analytic skills

11
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
73) The daily demand for a product is normally distributed with a mean of 80 and a standard deviation
of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs $8 and the
carrying rate per year is 10% of the item cost. Determine the economic order quantity for a 365-day
year.
Answer: 1209
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: economic order quantity
AACSB: Analytic skills

74) In a noninstantaneous receipt model, daily demand is 55 units and daily production is 120 units,
Co=$70 and Cc=$4 per unit/year. The production facility operates 300 days per year. What is the
maximum inventory level?
Answer: 559.3 units
Diff: 2 Page Ref: 764
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: EOQ Model with noninstantaneous receipt
AACSB: Analytic skills

75) In a noninstantaneous receipt model, daily demand is 55 units and daily production is 120 units,
Co=$70 and Cc=$4 per unit/year. The production facility operates 300 days per year. What is the
optimal order quantity?
Answer: 1032.55
Diff: 1 Page Ref: 765
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: noninstantaneous receipt model, economic production model
AACSB: Analytic skills

76) A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is $20
and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced in-house
where the daily production rate is 50 units. Assume 360 working days per year and determine the
economic production quantity.
Answer: 490 units
Diff: 2 Page Ref: 765
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: econ order/prod quantity, non-instantaneous receipts model
AACSB: Analytic skills

77) A product has an annual demand of 3600 units. Unit cost for this product is $3. Set up cost is $20
and the inventory carrying rate as a percent of the unit cost is 25%. The product is produced in-house
where the daily production rate is 50 units. Assume 360 working days per year. Determine the annual
ordering cost and carrying cost if the optimal production quantity is made each time.
Answer: $147 and $147 for a total of $294.
Diff: 2 Page Ref: 754-755
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: econ order/prod quant, non-instant receipt mod, an order/carry cost
AACSB: Analytic skills

12
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
78) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year and CS=$25, what is the total annual shortage cost?
Answer: 296.53
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the total annual shortage cost
AACSB: Analytic skills

79) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year and CS=$25, what is the optimal order quantity?
Answer: Qopt = 495.74 units
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the optimal order quantity
AACSB: Analytic skills

80) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year and CS=$25, what is the annual ordering cost?
Answer: 1355.54
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: the annual ordering cost, EOQ model with shortages
AACSB: Analytic skills

81) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year and CS=$25, what is the optimal stock out level?
Answer: Sopt = 108.44 units
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: optimal stock out level, EOQ model with shortages
AACSB: Analytic skills

82) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year and CS=$25, what is the annual carrying cost?
Answer: 1059.03
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: the annual carrying cost, EOQ model with shortages
AACSB: Analytic skills

83) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year and CS=$25, what is the total minimum annual inventory cost?
Answer: TCmin = 2711.09
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: total minimum annual inventory cost, EOQ model with shortages
AACSB: Analytic skills

13
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
A company distributes repair parts for high-end appliances. The annual demand is 81,000 and the
company operates 300 days per year. The annual carrying cost is 20% of the item cost, which is $500.
The ordering cost is estimated at $60 and the shortage cost is $150.

84) Determine the optimal order quantity.

Answer: 402.5
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages
AACSB: Analytic skills

85) Determine the optimal shortage level.

Answer: 161
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the optimal shortage level
AACSB: Analytic skills

86) How many order per year will they place?

Answer: 201
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the annual carrying cost
AACSB: Analytic skills

87) What is the maximum inventory level?

Answer: 242
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the annual setup cost
AACSB: Analytic skills

88) Determine the annual shortage cost.

Answer: $4830
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the annual shortage cost
AACSB: Analytic skills

89) If the daily demand is 30 and the lead time in days is 3, what is the reorder point?
Answer: 90
Diff: 1 Page Ref: 776
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

14
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90) If the daily demand is 67 and the lead time in days is 2, what is the reorder point?
Answer: 134
Diff: 1 Page Ref: 776
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

91) If the daily demand is 25 and the lead time in days is 4, what is the reorder point?
Answer: 100
Diff: 1 Page Ref: 776
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

92) Sonny Lawler’s law office uses EOQ models to manage their office supplies. They've been ordering
ink refills for their printers in quantities of 60 units. The firm estimates carrying cost at 40% of the $10
unit cost and that annual demand is about 240 units per year. The assumptions of the basic EOQ model
are thought to apply. For what value of ordering cost would its action be optimal?
Answer: $30
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: economic order quantity
AACSB: Analytic skills

93) Dana Swor's Dream Store sells weight loss products. Her best-selling item, an energy booster and fat
burning pill, has an annual demand of 400 units. Ordering cost is $40 and carrying cost is $5 per unit
year. How many units should she order to minimize total inventory costs?
Answer: 80
Diff: 1 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model
AACSB: Analytic skills

94) Annual demand for a paperback dictionary at the bookstore is 1200 units. Ordering costs are 350,
carrying costs are $6 per unit per year, and the lead time is 9 days. The bookstore is open for 300 days of
the year. What is the reorder point?
Answer: 36
Diff: 1 Page Ref: 776
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

95) If average demand for an inventory item is 200 units per day, lead time is 3 days, and safety stock is
100 units, what is the reorder point?
Answer: 700
Diff: 1 Page Ref: 776
Section Heading: Reorder Point
Keywords: safety stock, reorder point
AACSB: Analytic skills

15
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
96) If average demand for an inventory item is 180 units per day, lead time is 5 days, and safety stock is
90 units, what is the reorder point?
Answer: 990
Diff: 1 Page Ref: 776
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

97) Annual demand for notecards at Suzie's Stationery shop is 10,000 units. Deliveries take about 5
working days and Suzie operates 300 days per year. Calculate the reorder point for the notecareds that
she stocks.
Answer: 167 notecards = 33.33 x 5
Diff: 1 Page Ref: 776
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

A bakery uses an average of 60 ounces of organic orange juice daily. Demand is normally distributed
with a standard deviation of 15 ounces. The bakery places orders every seven days. The lead time for
delivery of the juice is three days.

98) Compute the safety stock required to achieve a 98% service level.
Answer: 97 ounces
Diff: 1 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: periodic inventory system
AACSB: Analytic skills

99) If the bakery has 190 ounces at the time an order is placed, how much should be ordered?
Answer: 697 - 190 = 507 ounces
Diff: 2 Page Ref: 780
Section Heading: Order Quantity for a Periodic Inventory System
Keywords: periodic inventory system
AACSB: Analytic skills

100) The daily demand for a product is normally distributed with a mean of 80 and a standard deviation
of 8. Constant lead time is 4 days. The cost of placing an order is $20. The item costs $8 and the
carrying rate per year is 10% of the item cost. Determine the reorder point to satisfy 90% of the orders.
Answer: 340.48
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: economic order quantity, reorder point
AACSB: Analytic skills

16
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
101) A bakery's use of corn syrup is normally distributed with a mean of 50 gallons per day and a
standard deviation of 5 gallons per day. Lead time for delivery of the syrup is normal with a mean of 4
days and a standard deviation of 2 days. The manager wants a service level of 99 percent. Calculate the
reorder point.
Answer: 434 gallons
Diff: 3 Page Ref: 779
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: reorder point, variable demand, variable lead time
AACSB: Analytic skills

102) A bakery's use of corn syrup is normally distributed with a mean of 50 gallons per day and a
standard deviation of 5 gallons per day. Lead time for delivery of the syrup is normal with a mean of 4
days and a standard deviation of 2 days. The manager reorders when his inventory drops to 300 gallons.
What cycle service level is implied by this policy?
Answer: z = .995, so service level = 84%
Diff: 3 Page Ref: 779
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: reorder point, variable demand/lead time, service level
AACSB: Analytic skills

103) A manager has just received a revised price schedule from a vendor. What order quantity should
the manager use in order to minimize total costs? Annual demand is 120 units, ordering cost is $10, and
annual carrying cost is $1 per unit.

Quantity Unit Price

1-59 $15
60-99 $14
100 or more $13

Answer: Optimal Q = 49. TC(49) = $1849; TC(60) = $1730; TC (100) = $1622, so order 100.
Diff: 3 Page Ref: 771-773
Section Heading: Quantity Discounts
Keywords: quantity discounts, constant carrying cost per unit
AACSB: Analytic skills

104) An office manager uses 400 boxes of file folders per year. The price is $8.50 per box for an order
size of 199 boxes or less, $8.00 per box for orders of 200 to 799 boxes, and $7.50 per box for an order of
800 or more boxes. Carrying cost is 20 percent of the price of the product and ordering costs are $80.
What order quantity minimizes total annual cost?
Answer: Optimal Q = 194. TC(194) = $3730; TC(200) = $3520; TC(800) = $3640, so order 200.
Diff: 3 Page Ref: 771-773
Section Heading: Quantity Discounts
Keywords: quantity discounts
AACSB: Analytic skills

17
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
105) ________ demand items are used internally to produce a final product.
A) Independent
B) Dependent
C) Assumed
D) Internal
Answer: B
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: inventory management

106) ________ demand items are final products demanded by an external customer.
A) Dependent
B) Independent
C) External
D) Integrated
Answer: B
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: independent demand

107) Inventory costs include

A) carrying costs.
B) ordering costs.
C) shortage costs.
D) all of the above
Answer: D
Diff: 2 Page Ref: 754
Section Heading: Elements of Inventory Management
Keywords: inventory costs

108) The purpose of inventory management is to determine

A) timing and cost of orders.
B) quantity and cost of orders.
C) timing and quantity of orders.
D) ordering and carrying costs.
Answer: C
Diff: 2 Page Ref: 756
Section Heading: Elements of Inventory Management
Keywords: inventory management

18
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
109) A keyboard costs $1000, and the annual holding cost is 25%. Annual demand is 10,000 units, and
the order cost is $150 per order. What is the approximate economic order quantity?
A) 16
B) 70
C) 110
D) 183
Answer: C
Diff: 3 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: economic order quantity, EOQ
AACSB: Analytic skills

110) In a(n) ________ inventory system, a constant amount is ordered when inventory declines to a
predetermined level.
A) optimal
B) economic
C) periodic
D) continuous
Answer: D
Diff: 2 Page Ref: 756
Section Heading: Inventory Control Systems
Keywords: continuous inventory system

111) In a(n) ________ inventory system, an order is placed for a variable amount after a fixed passage
of time.
A) periodic
B) continuous
C) optimal
D) economic
Answer: A
Diff: 2 Page Ref: 757
Section Heading: Inventory Control Systems
Keywords: periodic inventory system

112) EOQ is used in a(n) ________ inventory system.

A) periodic
B) continuous
C) optimal
D) economic
Answer: B
Diff: 3 Page Ref: 756
Section Heading: Economic Order Quantity Models
Keywords: economic order quantity models, EOQ models

19
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
113) EOQ is the optimal order quantity that will ________ total inventory costs.
A) maximize
B) minimize
C) steady
D) maintain
Answer: B
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity models

Kushie's Coffee in Bangalore is a quaint establishment nestled near MG Road in the central business
district. It serves coffee and fruit cake to a clientele that has been enjoying these products for over fifty
years. The demand for coffee beans is 6600 cases per year (each case has 24 ten-pound bags). It would
be disastrous for them to run out of coffee, so they keep a safety stock of 30 cases. The cases cost $4800
and it costs $5 per case to order coffee. As coffee is a perishable product, the holding cost is fairly high
at $40/case/year. The lead time to receive an order is seven days. Kushie's is open 300 days a year.

114) What is their economic order quantity?

A) 40.6 cases
B) 162.5 cases
C) 406 cases
D) 1649.9 cases
Answer: A
Diff: 2 Page Ref: 760
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model
AACSB: Analytic skills

115) How many orders per year do they place if they order at double their EOQ quantity?
A) 40.6
B) 81.2
C) 162.5
D) 325
Answer: B
Diff: 2 Page Ref: 760
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model
AACSB: Analytic skills

116) What is their reorder point if they order at twice their EOQ?
A) 46 cases
B) 92 cases
C) 184 cases
D) 368 cases
Answer: C
Diff: 2 Page Ref: 775
Section Heading: Reorder Point
Keywords: economic order quantity model
AACSB: Analytic skills

20
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
117) What is their annual ordering cost if they order at their EOQ level?
A) 101.6
B) 203.1
C) 406.2
D) 812.4
Answer: D
Diff: 2 Page Ref: 760
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model
AACSB: Analytic skills

118) What is the increase in their EOQ if all of the model parameters (except the number of days in a
year) double?
A) 100%
B) 33%
C) 41%
D) 50%
Answer: C
Diff: 2 Page Ref: 760
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model
AACSB: Analytic skills

119) Assumptions of the EOQ model include:

A) Demand is normally distributed.
B) Lead time is normally distributed.
C) There is instantaneous order receipt.
D) Backorders can occur.
Answer: C
Diff: 2 Page Ref: 758
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity models

120) In the basic EOQ model, if lead time increases from 5 to 10 days, the EOQ will
A) double.
B) increase, but not by double the amount.
C) remain the same.
D) decrease.
Answer: C
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model, econ order quantity models, assumption of EOQ models
AACSB: Analytic skills

21
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
121) The economic production quantity is 500 units (units are delivered to the user department as they
come off the production line). If the firm decides to buy this item from an outside supplier rather than
producing it, the economic purchase quantity would probably be (assume that inventory costs of
production and purchasing an item are the same):
A) less than 500 units.
B) more than 500 units.
C) 500 units.
D) The direction of change in quantity cannot be determined without additional information.
Answer: B
Diff: 3 Page Ref: 765
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: economic production quantity model, non-instant receipts model
AACSB: Analytic skills

122) If order quantity is increased, annual holding cost ________, annual order cost ________, and
change in annual total cost ________.
A) decreases, increases, is positive
B) decreases, increases, cannot be determined
C) increases, decreases, is negative
D) increases, decreases, cannot be determined
Answer: D
Diff: 3 Page Ref: 760
Section Heading: The Basic EOQ Model
Keywords: economic order quantity model
AACSB: Analytic skills

123) In an EOQ model, as the carrying cost increases, the order quantity
A) increases.
B) decreases.
C) remains the same.
D) cannot be determined.
Answer: B
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity
AACSB: Analytic skills

124) In the basic EOQ model, if D=60 per month, Co=$12, and Cc=$10 per unit per month, what is the
EOQ?
A) 11
B) 12
C) 13
D) 14
Answer: B
Diff: 1 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity models
AACSB: Analytic skills

22
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
125) In the basic EOQ model, if annual demand is 50, carrying cost is $2 per unit per year, and ordering
cost is $15, what is the EOQ?
A) 27.39
B) 26.39
C) 25.39
D) 24.39
Answer: A
Diff: 1 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity models
AACSB: Analytic skills

126) The daily sales of a peanut butter at Power’s Grocery are normally distributed, with a mean of 12
jars and a standard deviation of 4. The manager checks the inventories on shelves and places an order
every three days. Delivery lead time is two days and they carry 21 jars for safety stock. If there are 4
jars on the shelf when an order is placed, how much should the store order?
A) 77
B) 81
C) 32
D) 36
Answer: A
Diff: 1 Page Ref: 780
Section Heading: Order Quantity for a Periodic Inventory System
Keywords: periodic review
AACSB: Analytic skills

127) In a noninstantaneous receipt model, daily demand is 55 units and daily production is 120 units,
Co=$70 and Cc=$4 per unit per year. What is the maximum inventory level? (Assume that the facility is
open 365 days per year.)
A) 616.9
B) 618.4
C) 620.3
D) 622.9
Answer: A
Diff: 2 Page Ref: 765
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: noninstantaneous receipt model
AACSB: Analytic skills

23
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
128) A firm is currently purchasing an item for inventory using the basic EOQ model. They plan on
making the product themselves and will be using the EOQ model based on noninstantaneous receipt of
inventory. If everything else stays the same, what changes should the firm expect?
A) EOQ decreases.
B) Average inventory level decreases.
C) Reorder point increases.
D) Safety stock increases.
Answer: B
Diff: 3 Page Ref: 764
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: noninstantaneous receipt model, economic production model
AACSB: Analytic skills

129) When using the EOQ Formula with noninstantaneous production, as the demand rate (D) increases
up to the rate of production, the EOQ
A) increases.
B) decreases.
C) remains the same.
D) cannot be determined.
Answer: A
Diff: 3 Page Ref: 764
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: noninstantaneous receipt model, economic production model
AACSB: Analytic skills

24
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
130) The diagram above represents which type of inventory model?
A) Economic Order Quantity (EOQ)
B) EOQ with Noninstantaneous Receipt
C) Economic Production Quantity
D) Fixed Period Model
Answer: B
Diff: 1 Page Ref: 764
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: EOQ with noninstantaneous receipt

131) The slope of the line labeled "B" in the diagram is

A) rate of inventory demand.
B) production rate.
C) shipping rate.
D) production rate minus rate of inventory demand.
Answer: D
Diff: 2 Page Ref: 754-755
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: EOQ with noninstantaneous receipt
AACSB: Analytic skills

132) The slope of the line labeled "A" in the diagram is

A) order rate.
B) rate of inventory demand.
C) production rate.
D) production rate minus rate of inventory demand.
Answer: C
Diff: 3 Page Ref: 764
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: EOQ with noninstantaneous receipt
AACSB: Analytic skills

25
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
133) The slope of the line labeled "C" in the diagram is
A) order rate.
B) rate of inventory demand.
C) production rate.
D) shipping rate.
Answer: B
Diff: 2 Page Ref: 764
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: EOQ with noninstantaneous receipt
AACSB: Analytic skills

134) The interval labeled "E" in the diagram is

A) production cycle.
B) production run length.
C) shipping lead time.
D) inventory fill rate.
Answer: A
Diff: 3 Page Ref: 764
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: EOQ with noninstantaneous receipt
AACSB: Analytic skills

135) The interval labeled "D" in the diagram is

A) production cycle.
B) order receipt period.
C) shipping lead time.
D) inventory fill rate.
Answer: B
Diff: 1 Page Ref: 764
Section Heading: The EOQ Model with Noninstantaneous Receipt
Keywords: EOQ with noninstantaneous receipt

136) A product has demand during lead time of 100 units, with a standard deviation of 25 units. What
safety stock provides (approximately) a 95% service level?
A) 41
B) 55
C) 95
D) 140
Answer: A
Diff: 3 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: EOQ model with shortages
AACSB: Analytic skills

26
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
137) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year, and Cs=$25, what is the total annual shortage cost?
A) 296.51
B) 298.53
C) 299.17
D) 285.91
Answer: A
Diff: 3 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages
AACSB: Analytic skills

138) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year, and Cs=$25, what is the order quantity?
A) 394.72
B) 495.74
C) 296.51
D) 456.34
Answer: B
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages
AACSB: Analytic skills

139) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year, and Cs=$25, what is the optimal stock out level?
A) 96.44
B) 102.36
C) 108.44
D) 114.64
Answer: C
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the optimal stock out level
AACSB: Analytic skills

140) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year, and Cs=$25, what is the annual carrying cost?
A) 1059.03
B) 1355.55
C) 296.51
D) 495.74
Answer: A
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the annual carrying cost
AACSB: Analytic skills

27
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
141) Given an EOQ model with shortages in which annual demand is 4200 units, Co=$160, Cc=$7 per
unit per year, and Cs=$25, what is the annual ordering cost?
A) 2711.09
B) 1059.03
C) 1355.55
D) 495.74
Answer: C
Diff: 2 Page Ref: 767
Section Heading: The EOQ Model with Shortages
Keywords: EOQ model with shortages, the annual ordering cost
AACSB: Analytic skills

The manager of the Quick Stop Corner convenience store (which is open 360 days per year) sells four
cases of Stein soda each day (1440 cases per year). Order costs are $8.00 per order. The lead time for an
order is three days. Annual holding costs are equal to $57.60 per case.

142) If the manager orders 16 cases each time she places an order, what is the average inventory level?
A) 4 cases
B) 8 cases
C) 12 cases
D) 20 cases
Answer: B
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: economic order quantity, EOQ
AACSB: Analytic skills

143) If the manager orders 16 cases each time she places an order, how many orders would she place in
a year?
A) 22.5
B) 50
C) 72
D) 90
Answer: D
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: economic order quantity, EOQ
AACSB: Analytic skills

144) What is the optimal order quantity for Stein soda?

A) 8 cases
B) 12 cases
C) 20 cases
D) 16 cases
Answer: C
Diff: 2 Page Ref: 761
Section Heading: The Basic EOQ Model
Keywords: economic order quantity, EOQ
AACSB: Analytic skills

28
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
145) What is the reorder point for Stein soda?
A) 4 cases
B) 8 cases
C) 12 cases
D) 16 cases
Answer: C
Diff: 2 Page Ref: 775
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

146) If the daily demand is 50 and the lead time in days is 4, what is the reorder point?
A) 200
B) 220
C) 240
D) 260
Answer: A
Diff: 1 Page Ref: 775
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

147) If the daily demand is 40 and the level time in days is 4, what is the reorder point?
A) 120
B) 140
C) 160
D) 180
Answer: C
Diff: 1 Page Ref: 775
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

148) If the daily demand is 10 and the lead time in days is 8, what is the reorder point?
A) 60
B) 70
C) 80
D) 90
Answer: C
Diff: 1 Page Ref: 775
Section Heading: Reorder Point
Keywords: reorder point
AACSB: Analytic skills

29
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
149) If average demand for an inventory item is 200 units per day, lead time is 3 days, and safety stock
is 100 units, what is the reorder point?
A) 500
B) 600
C) 700
D) 800
Answer: C
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: reorder point
AACSB: Analytic skills

150) Ruby owns a small café and uses a linen supplier for her tablecloths. Whenever she needs more
tablecloths, she calls the supplier. She uses an average of 12 tablecloths a day with a standard deviation
of 3 tablecloths. Lead time is a constant 2 days. If Ruby is willing to accept a 5% stockout risk, what is
the reorder point, rounded to the nearest tablecloth? Assume demand is normally distributed.
A) 28
B) 31
C) 34
D) 42
Answer: B
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: reorder point
AACSB: Analytic skills

151) The service level is the probability that

A) the inventory will meet demand.
B) the inventory available during lead time will meet demand.
C) the inventory available during lead time will not meet demand.
D) the inventory will not meet demand.
Answer: B
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: safety stocks, service levels

152) What service level results in zero safety stock in reorder point calculations?
A) 0%
B) 33%
C) 50%
D) 80%
Answer: C
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: safety stock, service level
AACSB: Analytic skills

30
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
153) The ________ is the probability that the inventory available during lead time will meet demand.
A) service level
B) inventory level
C) reorder point
D) maximum inventory level
Answer: A
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: safety stocks, service levels

154) If annual demand equals 1000 units, the number of working days per year is 250, Co=$300 per
order and Cc=$3 per unit, how many days are between orders in the basic EOQ model?
A) 110
B) 112
C) 117
D) 122
Answer: B
Diff: 2 Page Ref: 762
Section Heading: The Basic EOQ Model
Keywords: EOQ model, economic order quantity models
AACSB: Analytic skills

155) As service level increases, expected number of stockouts ________ and safety stock ________.
A) increase, increases
B) decrease, decreases
C) decrease, increases
D) increase, decreases
Answer: C
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: safety stock, service level
AACSB: Analytic skills

156) Adding 1.5 standard deviations of safety stock to the average demand during lead time will result
in a service level of approximately:
A) 68.4%
B) 84.1%
C) 93.3%
D) 97.7%
Answer: C
Diff: 2 Page Ref: 777
Section Heading: Determining Safety Stocks Using Service Levels
Keywords: safety stock, service level
AACSB: Analytic skills

31
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
157) A periodic inventory system
A) uses fixed order sizes at variable time intervals
B) normally requires a larger safety stock
C) cannot be used if demand is variable
D) is used to periodically manage inventory
Answer: B
Diff: 2 Page Ref: 780
Section Heading: Order Quantity for a Periodic Inventory System
Keywords: periodic inventory system, fixed time period inventory system

32
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall