Deck 9: Inventory Fundamentals

Question 1

Lower inventories can be achieved by ordering smaller quantities more often, but this practice results in higher annual ordering costs. This defines:

A) customer service
B) transportation costs
C) the cost of placing orders
D) the costs associated with changing production levels

Answer 1

C

Question 2

About 50% of the items account for about 5% of the dollar usage is a good description of ____________ inventory items.

A) A
B) B
C) C
D) D

Answer 2

C

Question 3

A stockout can potentially be expensive because of:

A) lost customers
B) lost sales
C) back- order costs
D) all of the above

Answer 3

D

Question 4

Every time an order is placed at a work center, the time taken to set up is lost as a productive output time. This is ____________ cost.

A) purchase order
B) setup and teardown
C) production control
D) lost capacity

Question 5

Which of the following represents the accounting equation?

A) Assets = liabilities * owner's equity
B) Assets + liabilities + owner's equity
C) Assets = liabilities - owner's equity
D) Assets = liabilities + owner's equity

Question 6

Given the following annual costs, calculate the average cost of placing one order: production control salaries = $60,000, supplies and operating expenses for production control = $15,000, cost of setting up work centers for an order = $120, and there are 2,000 orders placed each year.

Question 7

Days of supply is calculated as:

A) average daily usage/inventory on hand
B) inventory on hand/average daily usage
C) inventory on hand * average daily usage
D) none of the above

Question 8

What should the objectives be of a firm wishing to maximize profit?

Question 9

Discuss the theory behind cash flow analysis.

Question 10

___________is the amount of money the owners have invested in the company.

A) Revenue
B) Income
C) Capital
D) Retained Earnings

Question 11

A company has 9,000 units on hand and the annual usage is 48,000 units. There are 240 working days in the year. What is the days of supply?

Question 12

The ABC principle is based on___________ law.

A) Pareto's
B) Crosby's
C) Deming's
D) Juran's

Question 13

Identify the various rules for inventory management. Why are these rules important?

Question 14

What costa are used for inventory management decisions?

Question 15

If owners' equity is $1,000 and liabilities are $800, what are the assets?

Question 16

What are anticipation inventories and why are they used?

Question 17

Analyze the following data to produce an ABC classification based on annual dollar usage:
part number annual unit usage unit cost $ annual $ usage ABC Classification $$\begin{array} { l l l } 1 & 200 & 10 \\ 2 & 15,000 & 4 \\3 & 60,000 & 6 \\4 & 15,000 & 15 \\5 & 1,400 & 10 \\6 & 100 & 50 \\7 & 25,000 & 2 \\8 & 700 & 3 \\9 & 25,000 & 1 \\10 & 7,500 & 1\end{array}$$

Question 18

Items that demand the simplest possible controls to make sure there are plenty in stock are___________ items.

A) A
B) B
C) C
D) D

Question 19

The___________ method assumes an average of all prices paid for the article.

A) LIFO
B) FIFO
C) average cost
D) standard cost

Question 20

A company carries an average annual inventory of $2,000,000. If it estimates the cost of capital is 10%, storage costs are 7%, and risk costs are 6%, what does it cost per year to carry this inventory?

Question 21

FIFO assumes the newest last) item in stock is the first sold.

Question 22

In broad terms, customer service is the ability of a company to satisfy the needs of customer.

Question 23

A items demand normal controls with good records, regular attention, and normal processing.

Question 24

Revenue are the costs incurred to make the product.

Question 25

Most companies carry a large number of items in stock.

Question 26

Item cost is the price paid for a purchased item, which consists of the cost of the item and any other indirect costs associated with getting the item into the plant.

Question 27

Inventories allow operations with different rates of production to operate separately and more economically.

Question 28

Owner's equity are obligations or amounts owed by a company.

Question 29

Capacity- associated costs can be avoided by leveling production, that is, by producing items in peak periods for sale in slack periods.

Question 30

Carrying costs include all expenses incurred by the firm because of the volume of inventory carried.