Objective questions of Inventory Models
1. The primary aim of an inventory model is to:
A) Maximize inventory levels
B) Minimize total inventory cost
C) Increase the number of orders
D) Maximize lead time
Answer: B) Minimize total inventory cost
2. In the basic EOQ model, which of the following costs are balanced to find the optimal
order quantity?
A) Holding cost and purchase cost
B) Holding cost and ordering cost
C) Ordering cost and shortage cost
D) Purchase cost and shortage cost
Answer: B) Holding cost and ordering cost
3. A deterministic inventory model assumes that:
A) Demand is constant and known
B) Demand is uncertain and fluctuating
C) Lead time varies randomly
D) Inventory replenishment is unpredictable
Answer: A) Demand is constant and known
4. In an EOQ model with shortages, the optimal order quantity is influenced by:
A) Ordering cost, holding cost, and shortage cost
B) Purchase cost and holding cost only
C) Holding cost and lead time only
D) Ordering cost and lead time only
Answer: A) Ordering cost, holding cost, and shortage cost
5. The reorder point in an inventory model is influenced by:
A) Order quantity only
B) Lead time and demand rate
C) Holding cost and shortage cost
D) Purchase cost and order size
Answer: B) Lead time and demand rate
6. In a price break model, the order quantity is influenced by:
A) Holding cost and discount levels
B) Ordering cost only
C) Shortage cost only
D) Lead time only
Answer: A) Holding cost and discount levels
7. Safety stock is maintained to:
A) Minimize order cost
B) Reduce holding cost
C) Handle demand and supply uncertainties
D) Minimize the order quantity
Answer: C) Handle demand and supply uncertainties
8. In a production inventory model with uniform replenishment, inventory is:
A) Replenished instantly
B) Replenished gradually over time
C) Replenished when shortages occur
D) Never replenished
Answer: B) Replenished gradually over time
9. Which inventory model is best suited when demand is variable and uncertain?
A) Deterministic inventory model
B) Probabilistic inventory model
C) EOQ model
D) Instantaneous replenishment model
Answer: B) Probabilistic inventory model
10. The backorder inventory model allows:
A) No shortages
B) Shortages with delayed fulfillment
C) Immediate replenishment
D) No safety stock
Answer: B) Shortages with delayed fulfillment
11. In the EOQ model, if the ordering cost increases, the EOQ will:
A) Increase
B) Decrease
C) Remain unchanged
D) First increase, then decrease
Answer: A) Increase
12. The term “stockout” refers to:
A) Excess inventory
B) Inventory spoilage
C) Shortage of inventory
D) Overstocking
Answer: C) Shortage of inventory
13. The inventory turnover ratio measures:
A) How quickly inventory is ordered
B) How often inventory is sold and replaced
C) The total cost of inventory
D) The holding cost per unit
Answer: B) How often inventory is sold and replaced
14. The EOQ model assumes that:
A) Inventory is replenished over time
B) Demand is known and constant
C) Lead time is variable
D) Shortages are allowed
Answer: B) Demand is known and constant
15. The holding cost per unit is typically expressed as a percentage of:
A) Ordering cost
B) Purchase cost
C) Reorder point
D) Safety stock
Answer: B) Purchase cost
16. The primary objective of an inventory model is to:
A) Maximize the order quantity
B) Minimize the total inventory cost
C) Maximize the holding cost
D) Minimize the number of orders
Answer: B) Minimize the total inventory cost
17. In the Economic Order Quantity (EOQ) model, the total cost is minimized when:
A) Ordering cost equals holding cost
B) Ordering cost is greater than holding cost
C) Holding cost is greater than ordering cost
D) Reorder point is equal to order quantity
Answer: A) Ordering cost equals holding cost
18. Which of the following is NOT an assumption of the basic EOQ model?
A) Constant demand rate
B) Instantaneous replenishment
C) Quantity discounts available
D) No shortages allowed
Answer: C) Quantity discounts available
19. In an EOQ model with shortages, the total cost includes:
A) Ordering cost, holding cost, and shortage cost
B) Ordering cost and holding cost only
C) Holding cost and shortage cost only
D) Ordering cost and shortage cost only
Answer: A) Ordering cost, holding cost, and shortage cost
20. If the demand rate increases, the EOQ will:
A) Increase
B) Decrease
C) Remain unchanged
D) First increase, then decrease
Answer: A) Increase
21. In a price break model, the optimal order quantity is calculated by considering:
A) Only the holding cost
B) Only the ordering cost
C) Both the ordering cost and holding cost at different price levels
D) Fixed order quantity
Answer: C) Both the ordering cost and holding cost at different price levels
22. In an EOQ model with uniform replenishment, inventory is replenished:
A) All at once
B) Gradually over time
C) Only when stockouts occur
D) Randomly
Answer: B) Gradually over time
Fill-in-the-Blank
1. The Economic Order Quantity (EOQ) model aims to minimize the total __________
and __________ costs.
(Answer: ordering, holding)
2. In the basic EOQ model, it is assumed that demand is __________ over time.
(Answer: constant)
3. The point at which a new order should be placed is called the __________.
(Answer: reorder point)
4. In an EOQ model with shortages, the total cost includes ordering cost, holding cost,
and __________ cost.
(Answer: shortage)
5. If the ordering cost decreases, the EOQ will __________.
(Answer: decrease)
6. The price break model considers the effect of __________ on the optimal order
quantity.
(Answer: quantity discounts)
7. In an inventory model with uniform replenishment, inventory is refilled at a
__________ rate.
(Answer: constant)
8. If the holding cost increases, the EOQ will __________.
(Answer: decrease)
9. The inventory level at which an order is placed is known as the __________.
(Answer: reorder point)
10. The EOQ model assumes that there are no __________ during the replenishment
period.
(Answer: stockouts)
1. In the EOQ model, the total cost is minimized when the ordering cost equals the
holding cost.
Answer: True
2. In a price break model, order quantity increases as the unit price increases.
Answer: False (Order quantity increases when unit price decreases due to quantity
discounts.)
3. Safety stock is used to prevent stockouts due to variability in demand or lead time.
Answer: True
4. In a production inventory model with uniform replenishment, inventory is
replenished all at once.
Answer: False (Inventory is replenished gradually over time.)
5. The reorder point depends only on the demand rate and not on the lead time.
Answer: False (Reorder point depends on both demand rate and lead time.)
6. The EOQ model assumes that there are no quantity discounts available.
Answer: True
7. The backorder model allows shortages with delayed fulfillment.
Answer: True
8. The holding cost per unit increases as the order quantity increases.
Answer: False (Holding cost per unit remains constant; total holding cost increases with
order quantity.)
9. In a probabilistic inventory model, demand is assumed to be constant and
predictable.
Answer: False (Demand is treated as variable and uncertain.)
10. The EOQ model with shortages includes both holding cost and shortage cost in the
total cost calculation.
Answer: True
11. The inventory turnover ratio measures how often the stock is replenished within a
period.
Answer: True
12. Stockout costs include lost sales, backorder costs, and customer dissatisfaction.
Answer: True
13. In an EOQ model with instantaneous replenishment, inventory is added to stock
gradually over time.
Answer: False (Inventory is added instantly.)
14. The higher the holding cost, the higher the optimal order quantity.
Answer: False (Higher holding costs reduce the optimal order quantity.)
15. The reorder point decreases if the lead time increases.
Answer: False (Reorder point increases with higher lead time.)
16. The EOQ model is not suitable for perishable items.
Answer: True
17. In a single-period inventory model, the objective is to balance the cost of
overstocking and understocking.
Answer: True
18. The safety stock increases if the demand variability decreases.
Answer: False (Safety stock decreases with lower demand variability.)
19. Inventory holding costs include storage costs, insurance, and depreciation.
Answer: True
20. The total cost curve in an EOQ model is U-shaped.
Answer: True
21. Lead time includes the time taken for order processing, production, and
transportation.
Answer: True
22. The price break model aims to minimize the ordering and holding costs without
considering quantity discounts.
Answer: False (The price break model considers quantity discounts.)
23. If demand increases, the EOQ decreases.
Answer: False (EOQ increases with higher demand.)
24. A two-bin inventory system ensures that one bin is always available as a backup.
Answer: True
25. Stockouts are more likely when the reorder point is set too low.
Answer: True
26. The production inventory model with shortages allows stock to drop to zero before
replenishment begins.
Answer: True
27. In the EOQ model, ordering cost increases with the increase in order quantity.
Answer: False (Ordering cost decreases as order quantity increases.)
28. In a price break model, the order quantity increases when the holding cost
increases.
Answer: False (Higher holding costs reduce order quantity.)
29. The reorder point remains constant even if the demand rate changes.
Answer: False (Reorder point increases if demand rate increases.)
30. Inventory turnover ratio is higher when the holding cost is high.
Answer: False (High holding costs typically reduce turnover.)
