CHAPTER 9

Question	Answer
1. Inventory management is not as important as it once was due to other factors that have come into play.	F
2. Inventory and the GDP grew at the same rate from 1994 through 2010.	F
3. Inventory plays a dual role in organizations. Inventory impacts the cost of goods sold as well as supporting the balance sheet, a new concept only recently receiving attention.	F
4. “Batching economies” and “cycle stocks” are the same.	T
5. Purchase economies and transportation economies are not complementary.	F
6. Setting safety stock levels for an organization is now a science.	F
7. A reason to hold inventory arises when an organization anticipates that an unusual event might occur that will negatively impact its source of supply.	T
8. Many companies can make a case for using a formal logistics organization to help resolve inventory objective conflicts.	T
9. Capital cost is also called interest or opportunity cost.	T
10. Storage space costs are not variable.	F
11. Ordering cost refers to the expense of placing an order for additional inventory and does not include the cost or expense of the product itself.	T
12. The reorder point depends on the orders in-house at that time.	F
13. EOQ can only be used for “push” inventory.	F
14. Most organizations would not operate under conditions of certainty for a variety of reasons.	T
15. In comparison with the basic EOQ approach, the fixed interval model does not require close surveillance of inventory levels.	T
16. JIT, MRP, MRP II, and DRP all incorporate some version of the basic EOQ model into their philosophies.	T
17. JIT was developed in the U.S. and copied by the Japanese.	F
18. JIT is often used to force inventory back up the pipeline and therefore does not reduce inventory.	F
19. MRP has been known for some time but lacked interest until recently.	T
20. MRPII will not allow an organization to integrate financial planning with operations and logistics.	F
21. The ABC analysis is based on Pareto’s Law.	T
22. Inventory as an asset on the balance sheet and a __________ on the income statement. a. liability b. footnote c. statement d. variable expense	d. variable expense
23. Inventory and the GDP grew by ______ amounts between 1994 and 2010. a. the same b. different c. inversely proportional d. exponential	b. different
24. Batching economies or cycle stocks usually arise from three sources. Which of these is not a source? a. procurement b. transportation c. production d. demand	d. demand
25. WIP inventories a. not included on the balance sheet. b. are associated with manufacturing. c. are the same as VMI inventories. d. are not impacted by EOQ.	b. are associated with manufacturing.
26. Seasonal stocks are not influenced by a. EOQ. b. weather. c. transportation. d. holidays.	a. EOQ.
27. Which department does not have any impact on inventory? a. finance b. manufacturing c. corporate governance d. marketing	c. corporate governance
28. Capital cost focuses on the cost of capital tied up in ________and the resulting lost opportunity from investing that capital elsewhere. a. plants b. inventory c. distribution centers d. WIP	b. inventory
29. Ordering cost refers to the expense of placing an order and a. includes the cost of capital. b. relates to the material management concept. c. does not include the cost of the product. d. not receiving it.	c. does not include the cost of the product.
30. In the event of a “stockout” one of the things that could happen is a. the vendor’s plant shuts down. b. the cost of capital is increased. c. the SCOR process would come into play. d. extra shipping cost may be incurred.	d. extra shipping cost may be incurred.
31. Dependent demand relates to a. demand for another inventory item or product. b. the spare parts needed to fill the order. c. VMI inventories. d. the cost of capital for the firm.	a. demand for another inventory item or product.
32. An organization selling its products FOB destination holds the title to the goods until: a. picked up by the trucker b. products reach the customer’s facility c. the customer is invoiced d. the customer receives the goods into their inventory system	b. products reach the customer’s facility
33. JIT is a _______ system. a. push b. Pareto’s Law c. MRP d. pull	d. pull
34. A DRP system is usually coupled with a _______ system in an attempt to manage the flow and timing of both inbound materials and outbound finished goods. a. Kan Ban b. VMI/ Consignment c. MRP d. JIT	c. MRP

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