What is the Economic Order Quantity Using the Fixed-Order-Quantity Model?


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What is the total annual cost per year?


Part I The Handbook of Logistics and Distribution.

1. A warehouse’s characteristic in a modern supply chain is all of the following except which one?

1. It is critical to providing a high customer service levels.

2. Is an integral part of the supply chain.

3. Is the most costly element of the supply chain.

4. Maintains a very low inventory cost.

5. All of the above are characteristics of a well-designed warehouse.


2. Which of the following can be used to reduce the need to hold inventory?

1. Safety stock.

2. Reorder level.

3. Efficient mode of shipment.

4. Supply chain visibility.

5. FIFO.


3. Which of the following statement is not true?

1. Cross-docking fulfils customer orders of multi-product lines

2 Trans-shipment sort products to smaller loads for quick delivery.

3.Cross-docking does not place products in storage.

4 Trans-shipment stock products until a customer order are received.

5.Trans-shipment depots may be small warehouses..


4. Storage occupies the largest proportion of the warehouse area. It is around ____ times the area occupied by Goods In/Out Marshaling and around _____ times the area occupied by Added Value activities.

1. [ _16 ; _8___ ]

2. [ _312.5 ; _625.0_ ]

3. [ _3.125 ; _6.25_ ]

4. [ 8 ; 4 ]

5. [ _0.50__ : _0.50 ].


5. Supply Chains the world over are organized around the concept of unit load, by which:

1. Products are transported, stored, and handled in standard modules.

2. Products are put into cartons which are stored in racks.

3.Only one carton per standard pallet.

4. Can only be moved using one mode of transportation.

5. All of the above are organised around the concept of unit load.


6. Which of the following about international pallet is incorrect?

1. Euro pallet size is: (1,200 by 800 millimetres).

2. UK pallet size is(1,200 by 1,000 millimeters).

3. United States pallet size is: (1,219 by1,016 millimetres).

4. The variations do not cause problems during international transport.

5. Problems will occur during design of international handling equipment.


7. Which of the following are typical characteristics are found in modern AGVS?

1. Can move materials from one location in the plant to another location.

2. Optical detectors avoid crashing into obstacles on the way.

3. Has right-of-way while moving around the warehouse.

4. 1, 2, and 3 above are typical characteristics of modern AGVS

5. Only 1 and 2 are typical characteristics of modern AGVS


8. Which of the following equipment is (are) generally not used to store pallets.

1. Cantilever racking.

2. Horizontal carousel.

3. Vertical carousal

4. Only 3 is not used to store pallets.

5. 1, 2, and 3 are not used to store pallets.


9. Which of the following statement for pallet live storage is False?

1. Generally has a non-powered inclined roller that moves the pallet to the rear (pick up) area.

2 the force of gravity is used to facilitate movement of pallets.

3.Stacking ad picking can operate simultaneously.

4. Maintain as last in first out (LIFO) stock rotation.

5. Maintains a first in first out (FIFO) stock rotation.


10. Theoretically, the ideal package for logistics and transportation purposes is a perfect:

A. sphere

B. square.

C. pyramid

D. cube

E. Barrel shaped


11. Which of the following is (are) not true for conveyor systems.

1. flexible to allow changes in direction to be made quickly.

2. Involves high capital costs.

3. suitable for high throughput.

4. Causes obstruction to movement of people and equipment.

5. Can move loads continuously or intermittently.


12. Most companies do not store the exact data needed for warehouse design. Which one of the following methods is used to assemble the relevant data :

1. Assemble data from another warehouse in the vicinity.

2. Assemble data from the Statistical Abstract.

3. Assemble data form the US dept. of Commerce.

4 assemble data from discussion with relevant management and staff.

5. Assemble data from the financial institution that is providing the finance.


13. How is Pareto’s 89/20 rule used for warehouse design?

1. for segregating stock in the warehouse.

2. Selecting the appropriate equipment.

3. Determining the stock location.

4. Only 1 and 3.

5. 1, 2, and 3.


14. At the design stage of a warehouse, various key environmental areas could be considered to reduce cost of operations. These include which of the following:

1. Provide greater proportion of skylights in the roof/ceiling for getting more natural light.

2. Collect rainwater from the roof for use in toilets.

3. Dock area design

4. Only 1 and 2.

5. 1, 2, and 3.


15. A balanced scorecard is a broad business approach that translates the strategic mission into tangible objectives and measures. It is a balanced approach because:

1. Shares equally the upside and downside of the business.

2. Shares equal responsibilities for managing the business.

3. Represents a balance between external and internal measures.

4. Realistic and useful KPIs can be developed to support the business.

5. because of all the above reasons.


16. A vital element of a good cost and performance and monitoring system is to develop suit- able and accurate diagnostic measures. Which of the following is not a diagnostic measure?

1. delivery-to-commit date.

2. Customer enquiry response time.

3. Order fulfilment lead time.

4. Supply chain response time.

5. Capacity utilisation.


17. Which of the following are the elements of good practice under the category of content ?

1. The use of budget as reference points.

2. The use of forecast as reference points.

3. The use of variance analysis.

4. The use of flexible budgeting.

5. All of the above are elements.


18. Which of the following is not a typical function in a stock holding warehouse?

1. Sorting.

2. Consolidation.

3. Order picking

4. Receiving.

5. All of the above are typical functions.



19.Which of the following impact’s the cost of processing an order?

1. when a customer orders.

2. how much the customer orders.

3. where the customer orders.

4. Only 1, 2, and 3 have an impact.

5. Only #1 and #2 have an impact.


20. Firms keep supplies of inventory for which of the following reasons?

A. To maintain dependence of operations

B. To provide a feeling of security for the workforce

C. To meet variation in product demand

D. To hedge against wage increases

E. In case the supplier changes the design


21. Which of the following is an assumption of the basic fixed-order-quantity inventory model?

A. Lead times are averaged.

B. Ordering costs are variable.

C. Price per unit of product is constant.

D. Back-orders are allowed.

E. Stock-out costs are high.


22. Assuming no safety stock, what is the reorder point (R) given an average daily demand of 50 units, a lead time of 10 days, and 625 units on hand?

A. 550

B. 500

C. 715

D. 450

E. None of the above.


23. “Slotting” a warehouse means:

A.Products are positioned for value added services

B.Products are assigned a specific warehouse location

C.Products are placed in a pick line location

D.Products are stored in slotted racks

E.None of the above.


24. In large warehouses, Warehouse Management System(WMS) are used to mix dissimilar tasks such as put away and replenishment saving time and fuel of the material handlers. Such a process is called:

A.Simultaneous routing

B.Variable routing

C.Directed routing

D.Task Interleaving

E .Random routing.


25. Which of the following is not a basic principle of material handling?

A. equipment should be as standardised as possible

B. gravity flow should be avoided in system design

C. a system should be designed to provide maximum continuous flow

D. Environmental impact must be considered

E. Material handling software should be standardised.


26. A major disadvantage of automated systems is:

A. they typically depend on proprietary information technology networks.

B. they are less accurate than typical mechanised systems

C. they substitute labour for capital investment

D. they are slower than mechanised systems

E. they need more maintenance than mechanised systems.


27. A disadvantage of AS/RS is that it:

A. results in greater product damage

B. have a high capital cost.

C. reduces labor productivity

D. reduces storage density

E. cannot operate in “high bay” warehouses.


If annual demand for a product stored in inventory is 50,000 units, each costing $25. The ordering cost is $25 per order, and the holding cost is 20%of the unit cost per year.


28. What is the economic order quantity using the fixed-order-quantity model?

A. 707.

B. 909.

C. 634.

D. 500.

E. 141


29. What is the total annual cost per year?

1. $5,454

2. $17,625.

3. $3,735.

4. $3,536.



30. How many orders were placed during the year (rounded to the nearest whole number)?

1. 1,768 orders

2. 3,536 orders

3. 500 orders.

4. 17,625 orders.

5. none of the above.


31. Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand, which of the following is the number of standard deviations necessary to have the 95 percent service probability assured?

A. 1.28.

B. 1.64.

C. 1.96

D. 2.00.

E. 2.18


32. To take into consideration demand uncertainty in reorder point (R) calculations, what do we add to the product of the average daily demand and lead time in days when calculating the value of R?

A. The product of average daily demand times a standard deviation of lead time

B. A z value times the lead time in days

C. The standard deviation of vendor lead time times the standard deviation of demand

D. The product of lead time in days times the standard deviation of lead time

E. The product of the standard deviation of demand variability and a z score relating to a specific service probability


33. When calculating a Reorder Point (ROP), which of the following factors would not affects the calculation?

A. Item’s EOQ.

B. Delivery lead time.

C. Demand during the delivery lead time.

D. Standard deviation of demand during delivery lead time.

E. Only 3 and 4 of the above items would affect the calculations.


34. Which of the following industry types have high expected benefits from the application of MRP?

A. Fabricate-to-stock.

B. Fabricate-to-order

C. Assemble-to-stock

D. Continuous process

E. Service and repair parts


35. One of the main purposes of an MRP system is which of the following?

A. Develop schedules specifying when each component should be ordered or produced.

B. Create productive capacity.

C. Decrease layers of management.

D. Track inventory levels.

E. Upgrade manufacturing’s planning and control.


36. Jones Company has calculated that the EOQ for a particular item is 1,000 units. However, Jones does not have enough capital to order that many units each time, so it only orders 250 units at a time. This will result in:

a. Higher annual inventory carrying cost than ordering the EOQ quantity

b. Lower annual inventory carrying cost than ordering the EOQ quantity.

c. Lower annual ordering cost than ordering the EOQ quantity

d. Cannot be determined

e. More stock outs.


37. Safety stock exists for which of the following reasons?

a. To allow less expensive purchases by buying more.

b. To allow for transportation time

c. To provide protection against the uncertainties of supply and demand.

d. To help in hedging the market.

e. None of the above.


38. Which combination of transportation operating service characteristics is not correct?

1. Frequency: pipeline is best; water is worst.

2. Accessibility: motor is best; air is worst

3. Capability: water is best; pipeline is worst.

4. Availability: Motor is best; pipeline is worst

5. Dependability:, air is best; pipeline is worst.


39. When a stock out occurs which of the following event(s) could possibly happen?

1. seller loses the customer and future sales are lost.

2. seller loses the revenue.

3. the buyer may back orders the product

4. the buyer waits until the product is available

5. any one of the above events could happen.


40. The mode of transportation hauling the most tonnage currently is:

A – Truck.

B – Rail.

C – Air.,

D – Water.

E. Pipeline

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