Which of the following statements is true?

Which of the following statements is true?
A . All indirect supplies are independent demand items
B. Number of independent demand items may be derived from the forecast
C. Dependent demand items are not directly correlated with production rate
D. Car engine is an example of independent demand items in a car assembly plant

View Answer

Answer: B

Explanation:

Dependent demand is the requirement for stock item which is directly related to and therefore de-pendent upon the rate of production (examples are: raw materials, components, energy). Independent demand is the requirement for stock item which is not directly related to, and is therefore independent of rate of production.

‘Number of independent demand items may be derived from the forecast’: Although independent demand is called thus, it can still be influenced by economic factors external to the demand-supply model such as general consumer sentiment and consumers’ available disposal income. However, businesses that need to predict the number of products with independent demand needed to sate their customers have it easier than businesses that must calculate the demand for products with dependent demand because there are fewer factors to consider.

‘Dependent demand items are not directly correlated with production rate’: As mentioned above, dependent demand items are directly correlated with production rate.

‘All indirect supplies are independent demand items’: Though most indirect supplier are inde-pendent demand, some are determined by the production rate, i.e. energy consumption of a major machinery.

‘Car engine is an example of independent demand items in a car assembly plant’: Car engine is a component in car which is the finished good of a car assembly plant, it is a dependent demand item. LO 2, AC 2.1