1. A regional bookstore chain wants to build a distribution center that is centrally located for its eight retail outlets. It will most likely employ which of the following tools of analysis?

assembly line balancing

load-distance analysis

center-of-gravity method

linear programming

locational cost-volume analysis

Answer:centre of gravity method.

2. A product has demand of4000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost _____ per year in total annual inventory costs.

A) $400

B) $800

C) $1200

D) Zero; this is a class C item.

E) Cannot be determined because unit price is not known.

Answer: B) $800

3. Adding a complementary product to what is currently being produced is a demand management strategy used when:

demand exceeds capacity.

capacity exceeds demand for a product that has stable demand.

the existing product has seasonal or cyclical demand.

price increases have failed to bring about demand management.

efficiency exceeds 100 percent.

Answer: demand exceeds capacity

4. An inventory decision rule states, “When the inventory level goes down to 14 gearboxes, 100 gearboxes will be ordered.” Which of the following statements is TRUE?

One hundred is the reorder point, and 14 is the order quantity.

Fourteen is the reorder point, and 100 is the order quantity.

The number 100 is a function of demand during lead time.

Fourteen is the safety stock, and 100 is the reorder point.

None of the above is true.

Answer: Fourteen is the reorder point, and 100 is the order quantity.

5. A county wants to build one centrally-located processing facility to serve the county’s four recycling drop-off locations. The four drop-offs have characteristics as given in the table below. What is the approximate center of gravity of these four locations?

Location

X-coordinate

Y-coordinate

Tonnage

Drop-off point A

1

8

10

Drop-off point B

6

7

35

Drop-off point C

6

2

25

Drop-off point D

4

7

50              

(4.75, 6.04)

(17, 24)

(33.5, 135.4)

(6, 4.25)

(570, 725)

Answer: (4.75, 6.04)

6. Retail inventory that is unaccounted for between receipt and time of sale is known as shrinkage.

True

False

Answer:False

7. The purpose of safety stock is to:

replace failed units with good ones.

eliminate the possibility of a stockout.

eliminate the likelihood of a stockout due to erroneous inventory tally.

control the likelihood of a stockout due to variable demand and/or lead time.

protect the firm from a sudden decrease in demand.

Answer:control the likelihood of a stockout due to variable demand and/or lead time

8. The reorder point is the inventory level at which action is taken to replenish the stocked item.

True

False

Answer:True

9. Break-even analysis is a powerful analytical tool, but is useful only when the organization produces a single product.

True

False

Answer:False

10. FedEx chose Memphis, Tennessee, as its U.S. hub because:

the city is in the center of the United States, geographically.

the airport has relatively few hours of bad weather closures.

it needed a means to reach cities to which it did not have direct flights.

the firm believed that a hub system was superior to traditional city-to-city flight scheduling.

All of the above are true.

Answer: All of the above are true.

11. In the simple EOQ model, if annual demand were to increase, the EOQ would increase proportionately.

True

False

Answer: False

12. Which of the following would NOT generally be a motive for a firm to hold inventories?

to decouple various parts of the production process

to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand

to take advantage of quantity discounts

to minimize holding costs

to hedge against inflation

Answer: to minimize holding costs

13. An example of an intangible cost, as it relates to location decisions, is the quality of education.

True

False

Answer: True

14. In location planning, environmental regulations, cost and availability of utilities, and taxes are:

global factors.

country factors.

regional/community factors.

site-related factors.

none of the above.

Answer: regional/community factors.

15. Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management.

True

False

Answer: False

16. Holding costs are $35 per unit per year, the ordering cost is $120 per order, and sales are relatively constant at 300 per month. (a) What is the optimal order quantity? (b) What are the annual holding and setup costs?

order size is 540 and annual inventory costs are 158

order size is 751 and annual inventory costs are 5000

order size is 157 and annual inventory costs are 5499

none of the above

Answer:order size is 157 and annual inventory costs are 5499

17. The bottleneck time is always at least as long as the throughput time.

True

False

Answer: False

18. Utilization is the number of units a facility can hold, receive, store, or produce in a period of time.

True

False

Answer:False

19. One function of inventory is to take advantage of quantity discounts.

True

False

Answer:True

20. Intangible costs include which of the following?

quality of prospective employees

quality of education

availability of public transportation

all of the above

none of the above

Answer:all of the above

21. The theory of constraints is a body of knowledge that deals with anything that limits an organization’s ability to achieve its goals.

True

False

Answer:True

22. Break-even analysis identifies the volume at which fixed costs and revenue are equal.

True

False

Answer:False

23. Currency risk is based on what assumption?

Firms that do not continuously innovate will lose market share.

Values of foreign currencies continually rise and fall in most countries.

Changing product lines by reacting to every current trend may alienate the customer base.

The value of one dollar today is greater than the value of one dollar to be received one year from now.

The U.S. stock market fluctuates daily.

Answer: Values of foreign currencies continually rise and fall in most countries.

24. Joe’s Camera shop has a favorite model that has annual sales of 145. The cost to place an order to replenish inventory is $25 per order, and annual inventory holding cost per unit is $20. Assume the store is open 350 days per year.

optimal order size = 19 units, N= 8 orders, optimal number of days between orders is 45.9 days, annual inventory cost= 380.79

optimal order size = 19 units, N= 9 orders, optimal number of days between orders is 59 days, annual inventory cost= 380.79

optimal order size = 11 units, N= 19 orders, optimal number of days between orders is 95 days, annual inventory cost= 190.40

none of the above

Answer:

25. Price changes are useful for matching the level of demand to the capacity of a facility.

True

False

Answer: True

26. Which of the following statements regarding FedEx is TRUE?

Its hub in Memphis, Tennessee, was selected because of its low cost.

Memphis, Tennessee, is the only hub in the company’s global flight network.

FedEx believes the hub system helps reduce mishandling and delays due to better controls.

FedEx uses a hub system in the United States, but a city-to-city network in other countries.

Memphis is FedEx’s only hub airport in the United States.

Answer: Its hub in Memphis, Tennessee, was selected because of its low cost.

27. To find the throughput time with simultaneous processes, compute the time over all paths and choose the shortest path through the system.

True

False

Answer: False

28. Lists have been developed that rank countries on issues such as “competitiveness” and “corruption.”

True

False

Answer: True

29. The proper quantity of safety stock is typically determined by:

using a single-period model.

carrying sufficient safety stock so as to eliminate all stockouts.

multiplying the EOQ by the desired service level.

setting the level of safety stock so that a given stockout risk is not exceeded.

minimizing total costs.

Answer:  setting the level of safety stock so that a given stockout risk is not exceeded.

30. Substantial research has proved that the only successful method of dealing with bottlenecks is to increase the bottleneck’s capacity.

True

False

Answer: False

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