Which of the following statements is true in regard to the difference between fi

Question

Which of the following statements is true in regard to the difference between fixed-order and fixed-time period models?
Fixed-time period models are normally more expensive to implement than fixed-order quantity models.
On average, fixed-order quantity models enable firms to hold smaller amounts of inventory than firms using fixed-time period
models.
Both fixed-order quantity and fixed-time period models operate on a perpetual review system.
All of the above statements are true
None of the above statement are true

Explanation / Answer

1. FALSE - because fixed order quantity methods require continuous review and hence is more expensive.

2. TRUE - Fixed-time period model has a larger average inventory because of the safety stock requirement for the review period for which fixed-order quantity method does not need any safety stock.

3. FALSE - Only fixed order quantity methods are perpetual (continuous) review systems.

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