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OTM Exam 2 Reading Questions And Answers (A+)
A delivery truck from a food wholesaler has just delivered fresh meat and produce to alocal restaurant. This meat and produce would be classified as what type of inventory by the restaurant? Raw materials inventory Work-in-process inventoryFinished goods inventory Seasonal inventory - ANSWER Raw material inventory Tablets and laptops would be classified as what type of inventory by an electronicsretailer?
Raw materials inventory Work-in-process inventoryFinished goods inventory Seasonal inventory - ANSWER Finished goods inventory Which of the following reasons for holding inventory allows a firm to reduce the impactof large fixed costs that the firm incurs every time it places an order to a supplier?
Seasonality Uncertain demandBuffers Batching - ANSWER Batching
A retailer sells its inventory of soda 50 times per year. On average it has 400 bottles ofsoda on its shelves.
What is this retailer's average daily sales rate? (Assume 365 days per year.) - ANSWER54.8 bottles
Average daily sales = 400 × 50 turns / 365 days = 54.8 bottles Assume an inventory turn of 7.5 for a retailer annually. What is its days-of-supply of inventory? Assume that there are 365 equivalent days ofsales in a year.- ANSWER 48.7 days
Days-of-supply of inventory = 365 days / 7.5 turns = 48.7 days A grocery chain recently reported the following: annual sales $89 billion, inventory $5.8billion and annual cost of goods sold of $64 billion.
What is the firm's annual inventory turns? - ANSWER 11.0 turns Turns = $64 billion annual COGS / $5.8 billion inventory = 11. The newsvendor model works for perishable products. (T/F) - ANSWER True The newsvendor model considers two types of costs to balance each other. Fixed cost of ordering Cost of ordering too manyShelving items cost
No - if there is left over inventory then a stockout doesn't occur No - expected inventory must be negative if the stockout probability is positive No - actual demand may differ from sales Yes - a firm cannot at the same time have stockout and leftover inventory, but thestockout probability may be positive even if there is positive expected leftover inventory
Yes - provided the underage cost is greater than the overage cost - ANSWER Yes - a firmcannot be stockout and have leftover inventory at the same time, but the stockout probability can be positive even though there is positive expected leftover inventory -It is not possible to stockout and have leftover inventory at the same time, but eitherone is possible which explains why there is a positive probability of a stockout and a positive expectation for leftover inventory. Which of the following is NOT an assumption of the EOQ model?It is possible to receive a purchase discount if the order quantity is sufficiently large.
There is a fixed cost to place each order that is unrelated to the size of the order. Demand arises at a uniform rate per period of time. There is a cost of carrying each unit of stock per period of time. - SOLUTION A purchasediscount may be available if the order size is large enough.
The EOQ minimizes the sum of the ordering cost and which of the following costs? Stockout cost
Holding cost Purchasing cost Quality cost - ANSWER Holding cost -The EOQ minimizes the sum of ordering and holding costs. A firm estimates its EOQ quantity to be 180 cases but it selects an order quantity of 200cases. Compared to the order quantity of 180 cases, the order quantity of 200 cases has: Higher ordering cost and higher holding costHigher ordering cost and lower holding cost Lower ordering cost and higher holding cost Lower ordering cost and lower holding cost - ANSWER Lower ordering cost and higherholding cost
-The ordering cost decreases with the order quantity and the holding cost increaseswith the order quantity.
The time value of money, opportunity cost, is not part of the calculation of EOQ holdingcost (T/F) - ANSWER False
Holding cost is which type of cost? FixedVariable Overhead - ANSWER Variable Which of the following would be a direct holding cost? (select all that apply)
Easy to remember name Customer's requirements are always metEase of maintaining the system Complicated mathematical calculations - SOLUTION Ease of maintaining the system Demand in each period is drawn from the same normal distribution, meaning that thereis one demand distribution representing demand in any single period. If demand is independent across periods, then which of the following is true about mean demandover 5 periods?
It is equal to the mean of demand over 1 period It is greater than the mean of demand over 1 period, but less than 5 times the mean ofdemand over 1 period
It equals 5 times the mean of demand over 1 period It is even more than 5 times the mean of demand over 1 period - ANSWER It equals 5times the mean of demand over 1 period
The average demand over several periods is the sum of the averages in each period.Because the mean demand is the same in every period, demand over 5 periods is 5 times the demand in one period. Demand in each period is drawn from the same normal distribution, meaning there isone demand distribution representative of demand in any single period. If demand is independent across periods, which of the following is true regarding the standarddeviation of demand over 5 periods?
It is equal to the standard deviation of demand over 1 period
It is greater than the standard deviation of demand over 1 period but less than 5 timesthe standard deviation of demand over 1 period
It equals to 5 times the standard deviation of demand over 1 period It is even more than 5 times the standard deviation of demand over 1 period - ANSWER Itis greater than the standard deviation of demand over 1 period, but less than 5 times the standard deviation of demand over 1 period When the same distribution represents demand in each period and demands acrossperiods are independent, the standard deviation of demand across multiple periods is the square root of the number of periods times the standard deviation in a single period.The square root of 5 is bigger than 1 but less than 5. So, standard deviation across 5-periods is higher than that of single period but lower than the 5 times the SD over asingle period. Which among the following provides the best explanation for the distributors reducespace that needs to be taken by a retailer in inventories? Distributor lets the retailer get truckload shipment lots more often. Distributors reduce the total distance products travel in the supply chain. Distributors allow retailers to receive smaller quantities of each supplier's product. Distributors increase the time that inventory spends in the supply chain. - ANSWERDistributors allow retailers to receive smaller quantities of each supplier's product.
What is the relationship between the average inventory and the in-stock probability? The more inventory the lower the in-stock probability There is not a definitive relationship - more inventory could mean a lower or a higher
It will increase We cannot tell from the information provided how it will change - ANSWER It willdecrease
-If the demand rate decreases and the retailers continue to order full truckloads, eachtruckload will satisfy demand for a longer period of time. The orders will therefore become less frequent. A company must decide whether to produce a new gadget at a plant located in acountry close to consumers at a higher labor cost and shorter lead time, or to outsource it to a country with low labor cost but with a longer lead time. All else being equal, whichof the following considerations would provide the most support to produce in the high-cost location? Holding cost/ unit is low Transportation cost/ unit / km is low The in-stock probability requirement for the product is highCustomers are willing to wait for delivery - ANSWER The in-stock probability requirement for the product is high
- Production with a short lead time is best with a product that must carry a substantialamount of inventory due to a high in-stock probability requirement or if it is costly to hold each unit of inventory or if transportation costs from the distant location are high. For 10% of the products in a category a firm fails to satisfy all demand during the month. What is their in-stock probability? ANSWER 90.0% In-stock probability is 1 − Stockout probability = 1 − 0.10 = 90%
