Business Quiz: Inventory Management- II

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| By Blondz_rule2
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Blondz_rule2
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Quizzes Created: 8 | Total Attempts: 21,640
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  • 1/10 Questions

    Which of the following is an advantage of cycle counting?

    • Timely detection and correction of problems
    • Reduction of direct labor costs
    • Use of spare labor
    • Replenishment of inventory
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About This Quiz

This Business Quiz: Inventory Management-II assesses understanding of stockkeeping units, economic order quantities, and safety stock. It explores how inventory costs are influenced by order quantities, ideal for learners in operations and supply chain management.

Business Quiz: Inventory Management- II - Quiz

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  • 2. 

    Safety stock will depend on which of the following?

    • Variability of demand

    • Cost of carrying inventory

    • Cost of placing an order

    • Product obsolescence

    Correct Answer
    A. Variability of demand
    Explanation
    Safety stock is a buffer stock that is held to protect against uncertainties in demand. The variability of demand refers to the fluctuations or unpredictability in the quantity of products or services that customers require. The more variable the demand, the higher the safety stock required to ensure that there is enough inventory to meet customer needs and prevent stockouts. Therefore, the variability of demand directly affects the determination of safety stock levels.

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  • 3. 

    In developing the standard economic order quantity (EOQ) formula, which of the following assumptions are made?

    • Demand for the item is relatively uniform.

    • Replenishment is in lots or batches that arrive all at once

    • Ordering and carrying costs are constant and known

    • All of the above are assumed

    Correct Answer
    A. All of the above are assumed
    Explanation
    The correct answer is "All of the above are assumed". In developing the EOQ formula, it is assumed that the demand for the item is relatively uniform, meaning it does not fluctuate significantly over time. It is also assumed that replenishment is done in lots or batches that arrive all at once, rather than in smaller quantities over time. Additionally, it is assumed that the ordering and carrying costs associated with the item are constant and known. All of these assumptions are considered in the development of the EOQ formula.

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  • 4. 

    What effect will increasing the order quantity have on the annual cost of carrying inventory?

    • Annual cost of carrying inventory will increase

    • Annual cost of carrying inventory will decrease

    • Annual cost of carrying inventory will remain the same

    • Annual cost of carrying inventory is not affected by the order quantity

    Correct Answer
    A. Annual cost of carrying inventory will increase
    Explanation
    Increasing the order quantity will result in an increase in the annual cost of carrying inventory. This is because a larger order quantity will require more storage space and may lead to higher holding costs, such as insurance, maintenance, and obsolescence. Additionally, a larger order quantity may also increase the risk of inventory becoming obsolete or damaged, leading to additional costs. Therefore, increasing the order quantity will result in an increase in the overall cost of carrying inventory.

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  • 5. 

    What type of inventory record system keeps a continuous account of transactions as they occur?

    • Perpetual inventory system

    • Periodic inventory system

    • Two-bin system

    • Safety stock system

    Correct Answer
    A. Perpetual inventory system
    Explanation
    A perpetual inventory system is a type of inventory record system that keeps a continuous account of transactions as they occur. This means that every time a transaction, such as a sale or purchase, takes place, the inventory is immediately updated. This system provides real-time information on the quantity and value of the inventory, allowing for accurate and timely decision-making. In contrast, a periodic inventory system only updates the inventory periodically, usually at the end of a specific period, such as a month or a year. The two-bin system and safety stock system are inventory management techniques, not inventory record systems.

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  • 6. 

    Which of the following statements best describes stockkeeping units?

    • Sodas in a 6-pack and 12-pack are the same SKU because the cans are the same SKU

    • White shirts of different sizes but in the same size box are the same SKU

    • Wires of different gauges that are stocked in reels are the same SKU

    • Two white shirts in the same inventory but of different sizes or styles would be different SKUs

    Correct Answer
    A. Two white shirts in the same inventory but of different sizes or styles would be different SKUs
    Explanation
    Stockkeeping units (SKUs) are unique identifiers used to track and manage inventory. They are used to differentiate between different variations of a product, such as different sizes, colors, or styles. In this case, two white shirts of different sizes or styles would be considered different SKUs because they have distinct characteristics that require separate tracking and management within the inventory system.

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  • 7. 

    Which of the following statements is best?

    • Order point = DDLT + SS

    • Average inventory = (Q + SS) / 2

    • Safety stock is always needed

    • Safety stock = order point + order quantity

    Correct Answer
    A. Order point = DDLT + SS
    Explanation
    The statement "Order point = DDLT + SS" is the best because it accurately represents the calculation for determining the order point in inventory management. The order point is the inventory level at which a new order should be placed, and it is calculated by adding the demand during lead time (DDLT) and the safety stock (SS). This formula ensures that enough inventory is maintained to meet customer demand during the lead time while accounting for any variability or uncertainty in demand.

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  • 8. 

    If the lead time is one week, the review period one week, the average demand 100 units per week, and the safety stock 50 units, the target level will be...

    • 150 units

    • 200 units

    • 250 units

    • 300 units

    Correct Answer
    A. 250 units
    Explanation
    The target level is determined by adding the average demand during the lead time (100 units) to the safety stock (50 units). In this case, the lead time is one week, so the target level would be 150 units.

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  • 9. 

    If the order quantity is increased, which of the following occurs?

    • The cost of carrying inventory decreases, and the cost of order increases

    • The cost of carrying inventory increases, and the cost of ordering decreases

    • The cost of carrying inventory increases, and the cost of ordering increases

    • The cost of carrying inventory decreases, and the cost of order decreases

    Correct Answer
    A. The cost of carrying inventory increases, and the cost of ordering decreases
    Explanation
    When the order quantity is increased, the cost of carrying inventory increases because there will be more inventory to store and manage. On the other hand, the cost of ordering decreases because with a larger order quantity, there will be fewer orders placed, resulting in lower order costs such as transportation and processing fees.

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  • 10. 

    Assuming that the cost per order and the demand are constant, what effect will increasing the order quantity have on the annual order cost?

    • Ordering cost will decrease

    • Ordering cost will increase

    • Ordering cost will remain the same

    • Ordering cost will increase at a decreasing rate

    Correct Answer
    A. Ordering cost will decrease
    Explanation
    Increasing the order quantity will result in a decrease in the annual order cost. This is because when the order quantity is increased, the number of orders placed in a year will decrease. As a result, the ordering cost, which is incurred each time an order is placed, will decrease. Therefore, increasing the order quantity leads to a decrease in the annual order cost.

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  • Current Version
  • Oct 01, 2024
    Quiz Edited by
    ProProfs Editorial Team
  • Feb 12, 2012
    Quiz Created by
    Blondz_rule2
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