SCM Chapter 5: Inventory Management
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Questions and Answers

What is the primary function of inventory in dealing with sudden changes in market demand?

  • Maintaining a steady supply of raw materials
  • Buffering from uncertainty in the marketplace (correct)
  • Reducing inventory costs
  • Decoupling dependencies in the supply chain

    • Which type of demand is influenced by trends, seasonal patterns, and general market conditions?

  • Supply chain demand
  • Market-driven demand
  • Independent demand (correct)
  • Dependent demand

    • What is an example of a finished good?

  • Raw wood for furniture
  • Partially processed chair parts
  • Assembled chairs ready to deliver to customers (correct)
  • Lubricants for machines

    • What is the purpose of maintaining a safety stock of umbrellas?

    <p>To meet the sudden demand of customers for an unexpected rainy day</p> Signup and view all the answers

    What is an example of a direct cost of inventory?

    <p>Cost of labor for manufacturing a chair</p> Signup and view all the answers

    Which of the following is NOT a primary function of inventory?

    <p>Maximize profit</p> Signup and view all the answers

    What is the primary function of inventory management in an organization?

    <p>To reduce waste and improve financial performance</p> Signup and view all the answers

    What is the difference between dependent and independent demand?

    <p>Dependent demand is influenced by the demand for other items, while independent demand is not</p> Signup and view all the answers

    What is the main purpose of the ABC inventory control system?

    <p>To categorize inventory items based on their importance and value</p> Signup and view all the answers

    What is the term for the cost of holding or storing inventory?

    <p>Holding or carrying cost</p> Signup and view all the answers

    What is one of the main benefits of effective inventory management?

    <p>Reducing waste and improving financial performance</p> Signup and view all the answers

    What is the term for the total value of inventory held?

    <p>Absolute value</p> Signup and view all the answers

    What is the quantity discount pricing schedule based on?

    <p>Annual demand</p> Signup and view all the answers

    What is the Economic Order Quantity (EOQ) formula?

    <p>√(2<em>AD</em>OC/CC)</p> Signup and view all the answers

    If the University Bookstore orders the EOQ quantity, what is the total annual cost?

    <p>$588,142.86</p> Signup and view all the answers

    How many times per year does the local electronics store reorder?

    <p>4.8</p> Signup and view all the answers

    What is the annual carrying cost per unit for the mail-order house?

    <p>$50</p> Signup and view all the answers

    What is the length of an order cycle for the local electronics store?

    <p>0.21</p> Signup and view all the answers

    What type of cost is associated with the electricity needed to operate a factory?

    <p>Indirect cost</p> Signup and view all the answers

    Which type of cost remains constant regardless of the production output quantity?

    <p>Fixed cost</p> Signup and view all the answers

    What is an example of an order cost?

    <p>Purchasing and communication costs needed to process a new wood order to suppliers</p> Signup and view all the answers

    What type of cost changes depending on the level of production output quantity?

    <p>Variable cost</p> Signup and view all the answers

    What is the purpose of measuring the inventory turnover ratio?

    <p>To evaluate the efficiency of inventory management</p> Signup and view all the answers

    What does a higher inventory turnover ratio generally imply?

    <p>More efficient inventory management</p> Signup and view all the answers

    What is the purpose of the Economic Order Quantity (EOQ) formula?

    <p>To determine the optimal order quantity to minimize total cost</p> Signup and view all the answers

    What is the relationship between the ordering cost and holding cost at the EOQ?

    <p>The ordering cost equals the holding cost</p> Signup and view all the answers

    What is the unit of measurement for the holding cost (H)?

    <p>Dollars per unit</p> Signup and view all the answers

    What is the length of an order cycle?

    <p>The time between orders</p> Signup and view all the answers

    What is the total annual cost (TC) formula?

    <p>TC = (Q / 2) H + (R / Q) I</p> Signup and view all the answers

    What is the purpose of the quantity discount in EOQ?

    <p>To reduce the total cost of inventory management</p> Signup and view all the answers

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