1. Management of inventory in an international environment is not more challenging than in a domestic environment. 
a. True
*b. False

2. Inventory management distinguishes between dependent-demand items and independent-demand items. 
*a. True
b. False

3. Inventory can be managed easily with a periodic-reorder model, checking inventory at regular intervals and ordering whats needed. 
a. True
*b. False

4. A companys holding costs are directly proportional to the amount of inventory it holds. 
*a. True
b. False

5. Transportation costs are added to the cost of goods sold, and are not considered inventory costs. 
*a. True
b. False

6. The Economic Order Quantity model is based on the trade-off between ordering costs and holding costs. 
*a. True
b. False

7. As inventory holding costs increase on a per-unit basis, the economic order quantity decreases. 
*a. True
b. False

8. Gradual replenishment refers to goods that are manufactured by a company rather than purchased from a supplier. 
*a. True
b. False

9. The lead time refers to the time that elapses between the moment an order is placed, and the time at which the order arrives. 
*a. True
b. False

10. In an international environment, lead times tend to be longer. 
*a. True
b. False

11. Safery stock determination is made in function of the variation of the demand during the lead time as well as variation in the length of the lead time. 
*a. True
b. False

12. In an A-B-C classification system, the B-class of products represent 30 percent of costs and 50 percent of products. 
a. True
*b. False

13. The file that lists all of the components of a product is called the Master Production Schedule. 
a. True
*b. False

14. Lot sizes that are marked lot-for-lot (L4L) refer to products that can be made in any quantity, with no minimum size requirements. 
*a. True
b. False

16. The planned-order-receipts refers to the number of units that will be produced and received from production. 
*a. True
b. False

16. Just-in-time production systems in most companies are essentially based on the kanban system developed by Toyota. 
a. True
*b. False

17. The MRP system of an original-equipment manufacturer is linked to the MRP systems of its suppliers, allowing the just-in-time delivery of assembly parts. 
*a. True
b. False

18. The difference between an MRP system and an MRP II system is that the latter includes cost components. 
*a. True
b. False

19. SAPs R/3 is the leading ERP. 
*a. True
b. False

20. Good inventory management practices can give a company a strategic advantage. 
*a. True
b. False


1. An Original Equipment Manufacturer purchases tires to use in the assembly of a lawn mower. For the tire manufacturer, the demand from this OEM is:
~ Dependent demand refers to the demand for products that are parts of a final assembly. The demand for the final product is called independent demand. 
@ Dependent demand refers to the demand for products that are parts of a final assembly. The demand for the final product is called independent demand. 
a. Independent demand. 
b. Final demand. 
c. End-product demand. 
*d. Dependent demand. 
e. Subordinate demand. 

2. Which of the following costs are not considered to be inventory costs?
~ All of the above costs are considered inventory costs, with the exception of transportation costs, which are considered part of the cost of goods sold. 
@ All of the above costs are considered inventory costs, with the exception of transportation costs, which are considered part of the cost of goods sold. 
a. Carrying costs (Holding costs). 
b. Set-up costs. 
c. Ordering costs. 
*d. Transportation costs. 
e. Shortage costs. 

3. The costs associated with starting the manufacturing process for a product, including the changes that need to be made to the machinery so it can switch from one product to the next, are collectively called:
~ The costs of preparing machinery so production of a product can start are called set-up costs. 
@ The costs of preparing machinery so production of a product can start are called set-up costs. 
a. Switch-up costs. 
b. Start-up costs. 
*c. Set-up costs. 
d. Change-up costs. 
e. Move-up costs. 

4. The EOQ model developed by Harris minimizes the sum of :
~ The economic-order-quantity model minimizes ordering and holding costs. 
@ The economic-order-quantity model minimizes ordering and holding costs. 
a. Inventory and manufacturing costs. 
*b. Holding and ordering costs. 
c. Set-up costs and holding costs. 
d. Transportation and inventory costs. 
e.  Set-up and manufacturing costs. 

5. The economic order quantity refers to:
~ The economic order quantity is the number of units that the firm should order, every time it places an order, so as to minimize the costs of ordering and holding its inventory. 
@ The economic order quantity is the number of units that the firm should order, every time it places an order, so as to minimize the costs of ordering and holding its inventory. 
a. The number of units that the firm purchases in a year. 
*b. The quantity of goods that the firm orders every time it places an order. 
c. The total yearly costs of ordering a set number of items on a regular basis. 
d. The per-order costs of ordering a fixed quantity every time the firm places an order. 
e. The sum of ordering and holding costs for the quantity of goods that the firm orders. 

6. In order to determine the economic order quantity for a particular good, the firm must have information relating to:
~ The EOQ formula requires information on demand, costs of holding, and costs of ordering. 
@ The EOQ formula requires information on demand, costs of holding, and costs of ordering. 
a. The demand for the product, in units per year
b. The cost of holding one unit in inventory per year
c. The cost of placing one order
*d. All of the data in this set of responses are required to calculate the EOQ 

7. In the economic-lot-size model, there is the assumption that the replenishment of inventory is:
~ The ELS model assumes that inventory is replenished gradually. 
@ The ELS model assumes that inventory is replenished gradually. 
*a. gradual. 
b. instantanous. 
c. progressive. 
d. limited. 
e. dependent on a final products sales. 
 
8. The quantity of goods that a firm keeps in its safety stock increases with which of the following elements?
~ Safety stocks increase when there is uncertainty in the demand during the lead time and when the service level provided increases. 
@ Safety stocks increase when there is uncertainty in the demand during the lead time and when the service level provided increases. 
a. The length of the lead time. 
*b. The service level expected by customers. 
c. The value of the goods. 
d. The time of the year. 
e. The consistency of demand during the lead time. 

9. The complexity of safety stock management increases in an international environment because:  
~ In domestic transactions, lead times are generally assumed constant and predictable. In an international environment, the variations in lead-time lengths add a fair amount of complexity. 
@ In domestic transactions, lead times are generally assumed constant and predictable. In an international environment, the variations in lead-time lengths add a fair amount of complexity. 
a. The lead times are longer. 
b. The demand for products experiences greater fluctuations. 
*c. There is uncertainty in the length of the lead time. 
d. The service levels have to be higher. 
e. Actually, its not more complex to manage safety stocks in an international environment than in a domestic environment. 

10. Which of the following A-B-C classifications is used to manage inventory?
~ In inventory management, the A-B-C classification only applies to inventory costs; however, the same concept in warehouse management can apply to the space they utilize or the percentage of sales they represent. 
@ In inventory management, the A-B-C classification only applies to inventory costs; however, the same concept in warehouse management can apply to the space they utilize or the percentage of sales they represent. 
*a. The relationship between the number of products and their contribution to inventory costs. 
b. The relationship between the number of products and their contribution to costs of goods sold. 
c. The relationship between the number of products and their contribution to volume/space in the warehouse. 
d. The relationship between the number of products and their volume of sale (the percentage of total sale they represent). 
e. The relationship between the number of products and their contribution to manufacturing costs. 

11. Which are the two individuals who are responsible for the creation of Materials Requirement Planning (MRP) and Manufacturing Resources Planning (MRP II) . 
~ Joseph Orlicky created MRP and Oliver Wight created MRP II
@ Joseph Orlicky created MRP and Oliver Wight created MRP II
a. Joseph Orlicky and John Jack Welch
b. Oliver Wight and Joseph Juran
c. Joseph Juran and W. Edwards Deming
*d. Joseph Orlicky and Oliver Wight
e. John Jack Welch and Joseph Juran

12. The file that contains the list and relationships of all of the components of a final product is called:
~ The bill of materials is the file that lists all of the components of a product and their relationships. 
@ The bill of materials is the file that lists all of the components of a product and their relationships. 
a. The list of materials. 
b. The statement of materials. 
c. The account of materials. 
*d. The bill of materials. 
e. The charge of materials. 

13. An MRP program creates a master production schedule that tell a company:
~ An MRPs master production schedule tells a company what to make, when, and in which quantities, as well as what to purchase, when, and in which quantities. 
@ An MRPs master production schedule tells a company what to make, when, and in which quantities, as well as what to purchase, when, and in which quantities. 
a. what to make. 
b. how many units to make. 
c. when to make them. 
d. what to purchase. 
*e. what to make, in which quantity, when to make them, and what to purchase, if needed. 

14. A bill of materials contains several levels, with the final product always being:
~ The final product in a BOM is always at level 0. 
@ The final product in a BOM is always at level 0. 
*a. Level 0. 
b. Level 1. 
c. Level n, with n being the highest level of the bill of materials. 
d. Level -1. 
e. actually, the final product is the end result and has no predetermined level. 

15. Planned order receipts are always equal to:
~ The planned order receipts (and planned order releases) are always equal to the lot size. 
@ The planned order receipts (and planned order releases) are always equal to the lot size. 
a. net requirements
b. on-hand inventory
c. planned order returns
d. gross requirements
*e. lot size

16. Assume gross requirements of 100 units, on-hand inventory of 20, and a lot size of 200, what would be the net requirements for that product?
~ Net requirements are equal to gross requirements, from which on-hand quantities are deducted. 
@ Net requirements are equal to gross requirements, from which on-hand quantities are deducted. 
a. 20
*b. 80
c. 100
d. 200

17. An assembly part has net requirements of 200 in week 5, a lot size of 250, and a lead time of 2 weeks. What are the planned order releases, and when? 
~ A part that has net requirements of 200 in week 5 and must be built/purchased in lots of 250 will have planned order receipts of 250 in week 5, and planned order releases for 250 in week 3. 
@ A part that has net requirements of 200 in week 5 and must be built/purchased in lots of 250 will have planned order receipts of 250 in week 5, and planned order releases for 250 in week 3. 
a. 200 in week 5. 
b. 250 in week 5. 
*c. 250 in week 3. 
d. 200 in week 3. 
e. there is not enough information to calculate this

18. One effective strategy to reduce lot sizes is to reduce:
~ The EPLS equation has the set-up costs in the numerator of the equation; any reduction in set-up costs translates to reductions in lot sizes. 
@ The EPLS equation has the set-up costs in the numerator of the equation; any reduction in set-up costs translates to reductions in lot sizes. 
a. manufacturing costs. 
b. holding costs. 
c. carrying costs. 
d. ordering costs. 
*e. set-up costs. 

19. The retail industry has adopted the MRP concept and called it:
~ The retail industry has adopted the concepts of MRP and called them Distribution Resource Planning (DRP). 
@ The retail industry has adopted the concepts of MRP and called them Distribution Resource Planning (DRP). 
a. Enterprise Resource Planning (ERP). 
*b. Distribution Resource Planning (DRP). 
c. Functional Resource Planning (FRP). 
d. Grocery Resource Planning (GRP). 
e. Retail Resource Planning (RRP). 

20. The legacy computer systems of the twentieth century were anticipated to be unable to adapt to which of the following challenges at the turn of the century? 
~ The switch to 20XX dates, called the Y2K problem, was frequently anticipated to be a difficult-to-resolve problem for legacy computer systems. 
@ The switch to 20XX dates, called the Y2K problem, was frequently anticipated to be a difficult-to-resolve problem for legacy computer systems. 
a. Faster computers 
*b. Y2K 
c. The growth of the Internet
d. E commerce
e. The growth of cellular telephones

Type: F
1. A ____________________ inventory management system checks how many units are left in inventory at regular intervals and places reorders to reach a pre-determined level of inventory. 
a. periodic

Type: F
2. An inventory management system that continuously monitors the quantity of goods in inventory and reorders goods when inventory levels reach a preset low point is a ____________________ model. 
a. fixed order quantity
b. fixed-order quantity

Type: F
3. In an international transaction, ____________________ costs are higher because transactions are more complex, paperwork is more substantial, and the time needed to complete these tasks is greater. 
a. ordering
b. order

Type: F
4. The ____________________ costs are those associated with starting the production process for manufacturing a products. 
a. set-up
b. setup

Type: F
5. When a company cannot fulfill an order because the product is not in inventory, it incurs a cost called a(n) ____________________ cost. 
a. shortage

Type: F
6. When a company does not have an item in inventory, it incurs costs associated with that situation. The biggest cost, though, is difficult to measure; its the loss of ______________ from customer. 
a. goodwill
b. good will

Type: F
7. The researcher who first formulated the economic-order-quantity model was  ____________________. 
a. Harris
b. Ford Harris

Type: F
8. In the economic-order-quantity model, at the optimal point, the ordering costs and the holding/carrying costs are _______________. 
a. equal

Type: F
9. In the EOQ formula, the cost of holding (Ch) refers to the cost of holding  ____________________ per year. 
a. one unit
b. a single unit
c. one item
d. a single item

Type: F
10. The economic-order-quantity model deals with instantanous replenishments, whereas the economic-lot-size model deals with  ____________________ replenishments. 
a. gradual
b. progressive

Type: F
11. The economic lot size is the quantity of goods that the firm should  ____________________ every time it decides to replenish inventory. 
a. manufacture
b. produce
c. make

Type: F
12. The _______________ is the amount of time that elapses between the moment an order is placed and the time at which the goods arrive in inventory. 
a. lead time
b. leadtime
c. lead time

Type: F
13. The _______________ is the probability that the firm will have the item in inventory when a customer orders it. 
a. service level

Type: F
14. One of the differences between a domestic reorder and an international reorder is that there can be ____________ in the duration of the leadtime. 
a. variability
b. changes

Type: F
15. Many companies manage their inventory by paying closer attention to those items that represent a large percentage of inventory expenses than to items that represent a small percentage of those costs; they have organized their inventory by following a/an  _______________ classification system. 
a. A-B-C
b. ABC

Type: F
16. The _______________ is a list of all of the components that make up a product. 
a. bill of materials
b. BOM

Type: F
17. MRP techniques are used for products that experience a _______________ demand. 
a. dependent

Type: F
18. When a manufacturer has the ability to manufacture any quantity of a particular part and does not have to produce a certain quantity (lot size), it is said to make them ______________ . 
a. lot for lot
b. lot-for-lot
c. L4L

Type: F
19. In an MRPs master production schedule, net requirements are equal to gross requirements from which  the number of units _______________ was deducted. 
a. on hand
b. on-hand
c. in inventory

Type: F
20. The Toyota corporation implemented the first _______________ inventory system, using a system of cards, called kanban. 
a. just in time
b. just-in-time
c. JIT