lOMoARcPSD|1286596
Economic Order Quantity
1) Among different types of costs associated with inventory, the costs of obtaining purchase
approvals are ________.
A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: B
Diff: 2
Objective: 1
AACSB: Analytical thinking
2) Among different types of costs associated with inventory, the incoming freight charges of
inventories are ________.
A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: A
Diff: 2
Objective: 1
AACSB: Analytical thinking
3) Among different types of costs associated with inventory, the opportunity cost of the
investment tied up in inventory is a(n) ________.
A) purchasing cost
B) ordering cost
C) stockout cost
D) carrying cost
Answer: D
Diff: 2
Objective: 1
AACSB: Analytical thinking
Objective 20.2
1) Which of the following statements is true of the the economic order quantity decision
model?
A) The economic order quantity increases with higher demand and higher carrying costs
and decreases with higher ordering costs.
B) The simplest version of the economic order quantity model assumes there are only
ordering costs, carrying costs, stockout costs, and purchasing costs.
C) It assumes the purchase order lead time is not known with certainty.
D) The larger the order quantity, the lower the annual relevant ordering costs and the
higher the annual relevant carrying costs.
Answer: D
Diff: 3
Objective: 2
AACSB: Analytical thinking
2) Which of the following is the correct mathematical expression to calculate annual
relevant ordering costs?
A) Demand in units for a specified period / (Relevant ordering cost per purchase order ×
Size of each order)
B) Size of each order × Relevant ordering cost per purchase order / Demand in units for a
, lOMoARcPSD|1286596
specified period
C) (Demand in units for a specified period / Size of each order) × Relevant ordering cost
per purchase order
D) (Demand in units for a specified period - Size of each order) × Relevant ordering cost
per purchase order
Answer: C
Diff: 2
Objective: 2
AACSB: Analytical thinking
3) Under economic-order-quantity decision model, it is assumed that ________.
A) the quantity ordered can vary at each reorder point
B) demand, ordering costs, and carrying costs are uncertain
C) the purchasing cost per unit is affected by the order quantity
D) no inventory stockouts occur
Answer: D
Diff: 2
Objective: 2
AACSB: Analytical thinking
, lOMoARcPSD|1286596
4) The following information applies to Krynton Company, which supplies microscopes to
laboratories throughout the country. Krynton purchases the microscopes from a
manufacturer which has a reputation for very high quality in its manufacturing operation.
Annual demand (weekly demand = 1/52 of annual demand)52,000 units
Orders per year 20
Lead time in days 15 days
Cost of placing an order $100
What is the reorder point?
A) 1,040 units
B) 2,143 units
C) 1,580 units
D) 3,080 units
Answer: B
Explanation: B) Reorder point = Number of units sold per time period × Purchase-order
lead time
Daily demand = 52,000/(52 × 7) = 142.86
Therefore, reorder point = 142.86 × 15 = 2,142.86
Diff: 2
Objective: 2
AACSB: Analytical thinking
Economic Order Quantity
1) Among different types of costs associated with inventory, the costs of obtaining purchase
approvals are ________.
A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: B
Diff: 2
Objective: 1
AACSB: Analytical thinking
2) Among different types of costs associated with inventory, the incoming freight charges of
inventories are ________.
A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: A
Diff: 2
Objective: 1
AACSB: Analytical thinking
3) Among different types of costs associated with inventory, the opportunity cost of the
investment tied up in inventory is a(n) ________.
A) purchasing cost
B) ordering cost
C) stockout cost
D) carrying cost
Answer: D
Diff: 2
Objective: 1
AACSB: Analytical thinking
Objective 20.2
1) Which of the following statements is true of the the economic order quantity decision
model?
A) The economic order quantity increases with higher demand and higher carrying costs
and decreases with higher ordering costs.
B) The simplest version of the economic order quantity model assumes there are only
ordering costs, carrying costs, stockout costs, and purchasing costs.
C) It assumes the purchase order lead time is not known with certainty.
D) The larger the order quantity, the lower the annual relevant ordering costs and the
higher the annual relevant carrying costs.
Answer: D
Diff: 3
Objective: 2
AACSB: Analytical thinking
2) Which of the following is the correct mathematical expression to calculate annual
relevant ordering costs?
A) Demand in units for a specified period / (Relevant ordering cost per purchase order ×
Size of each order)
B) Size of each order × Relevant ordering cost per purchase order / Demand in units for a
, lOMoARcPSD|1286596
specified period
C) (Demand in units for a specified period / Size of each order) × Relevant ordering cost
per purchase order
D) (Demand in units for a specified period - Size of each order) × Relevant ordering cost
per purchase order
Answer: C
Diff: 2
Objective: 2
AACSB: Analytical thinking
3) Under economic-order-quantity decision model, it is assumed that ________.
A) the quantity ordered can vary at each reorder point
B) demand, ordering costs, and carrying costs are uncertain
C) the purchasing cost per unit is affected by the order quantity
D) no inventory stockouts occur
Answer: D
Diff: 2
Objective: 2
AACSB: Analytical thinking
, lOMoARcPSD|1286596
4) The following information applies to Krynton Company, which supplies microscopes to
laboratories throughout the country. Krynton purchases the microscopes from a
manufacturer which has a reputation for very high quality in its manufacturing operation.
Annual demand (weekly demand = 1/52 of annual demand)52,000 units
Orders per year 20
Lead time in days 15 days
Cost of placing an order $100
What is the reorder point?
A) 1,040 units
B) 2,143 units
C) 1,580 units
D) 3,080 units
Answer: B
Explanation: B) Reorder point = Number of units sold per time period × Purchase-order
lead time
Daily demand = 52,000/(52 × 7) = 142.86
Therefore, reorder point = 142.86 × 15 = 2,142.86
Diff: 2
Objective: 2
AACSB: Analytical thinking
