1. Which of the following is NOT a reason for carryinginventory?
a) Inventory can be used to meet variation in product demand.
b) Inventory can be used to maintain independence ofoperations.
c) Inventory can enable purchasing to take advantage of quantitydiscount.
d) Inventory can be used to hedge against uncertainity in materialdelivery time.
e) Inventory can be used to reuce flexibility in productionscheduling.

2. Costs associated with transactions, shipping and handling,paperwork, and delivery are:
a) Inventory holding costs.
b) Purchase costs.
c) Setup costs.
d) Shortage costs.
e) none of the above

3. What is the implementation of the Fixed Order Quantity inventorypolicy?
a) When the inventory on hand is less than the maximum shelf levelof R units, order the number of units which will restore theinventory level back to R units.
b) When the order size of Q units is received, place another orderof Q units until the total inventory on hand is R units orless.
c) Reorder R units after an order quantity of Q units have beenused.
d) When the current inventory on hand is less than or equal to thereorder level of R units, place an order of Q units.
e) None of the above is correct.

4. A restaurant consumes wine at the rate of 50 bottles per day.Currently, the restaurant manager purchases 150 bottles in anorder. This ordering policy yields a total annual holding cost of$5,020 and a total annual ordering cost of $3,000. Is therestaurant adopting FOQ policy in its current inventorypolicy?
a) Yes.
b) No.
c) It can be yes or no, depending on the reorder level.

5. Which of the following is(are) NOT assumption(s) of the FOQmodel with usage?
a) Demand is pretty stable and predictible over time.
b) Depletion of inventory (due to demand) and replenishment ofinventory (due to multiple delivery shipments) occur at the sametime.
c) When an order is places, the entire order of Q units will bedelivered L days later.
d) Both A and B are correct.
e) A, B, and C are correct.