Question 1

Inventory from an accounting perspective is the amount of open supply invoices in accounts payable.

Accepted Answer

From an accounting definition, inventory includes those assets that are used to generate revenue and that will be converted to cash in the short term.

Question 2

From an operations perspective, inventory represents a margin of safety to protect the business from unpredictable levels of demand.

Accepted Answer

Inventory acts as a buffer to ensure that a business can meet customer demand even when there are fluctuations or unexpected increases, thus providing a margin of safety.

Question 3

Regardless of the method of inventory costing chosen, the value has to follow the &#34;conservative&#34; principle of accounting, which states inventory should be valued at the lower of cost or market.

Accepted Answer

The "conservative" principle, also known as the lower of cost or market rule, requires inventory to be recorded at the lower of its historical cost or its current market value to avoid overstating assets.

Question 4

Perpetual inventory systems have an unfortunate risk of increasing the probability of stockouts.

Accepted Answer

Perpetual inventory systems also allow for the use of automated replenishment versus manual ordering and replenishment processes. Automated replenishment is less people-intense, more efficient, and less expensive in the long run, but it is also faster and ensures fewer stockouts

Question 5

Expired or obsolete items are two causes of inventory shrinkage.

Accepted Answer

Expired or obsolete items can no longer be sold, leading to inventory shrinkage as they are removed from the inventory count.

Question 6

Inventory accounting errors generally should correct themselves in the subsequent accounting period.

Accepted Answer

Inventory errors generally "correct" themselves at the end of the second period and are commonly referred to as a "counterbalancing error". This is one of the positive facts about inventory: eventually, all errors self-correct over time. So, if inventory is not counted one year, resulting in undervalued inventory and higher supply expense on the income statement, it will be caught and fixed in the second year when an additional count discovers the error and makes an adjustment.

Question 7

Safety stock defines those items held in inventory to address life safety dangers or natural disasters.

Accepted Answer

The basic purpose of safety stock is to carry additional inventory to satisfy unexpected demand.

Question 8

At a minimum, a hospital inventory policy will include all of the following except:&#10;A) Inventory valuation method&#10;B) What physicians are allowed to make supply recommendations&#10;C) Periodic versus perpetual accounting&#10;D) Inventory capitalization guidelines

Accepted Answer

A hospital inventory policy typically focuses on the management and accounting of inventory, not on which physicians can make supply recommendations.

Question 9

Generally accepted inventory valuation methods include:&#10;A) FILO&#10;B) Hand count&#10;C) FIFO&#10;D) None of the above

Accepted Answer

The answer of Generally accepted inventory valuation methods include:&#10;A) FILO&#10;B)...

Question 10

Inventory turnover is calculated using which of these formulas?&#10;A) Total number of units on hand &#247; Average daily units used&#10;B) Cost of goods sold &#247; Average inventory&#10;C) Net income &#247; Inventory&#10;D) (Total book value - Observed value) &#247; Inventory

Accepted Answer

Cost of goods sold ÷ Average inventory is the formula for inventory turnover.

Question 11

Return on Inventory is calculated using which of these formulas?&#10;A) Total number of units on hand &#247; Average daily units used&#10;B) Cost of goods sold &#247; Average inventory&#10;C) Net income &#247; Inventory&#10;D) (Total book value - Observed value) &#247; Inventory

Accepted Answer

The answer of Return on Inventory is calculated using which...

Question 12

Shrinkage is calculated using which of these formulas?&#10;A) Total number of units on hand &#247; Average daily units used&#10;B) Cost of goods sold &#247; Average inventory&#10;C) Net income &#247; Inventory&#10;D) (Total book value - Observed value) &#247; Inventory

Accepted Answer

The answer of Shrinkage is calculated using which of these...

Question 13

Days inventory on hand (DIO) is calculated using which of these formulas?&#10;A) Total number of units on hand &#247; Average daily units used&#10;B) Cost of goods sold &#247; Average inventory&#10;C) Net income &#247; Inventory&#10;D) (Total book value - Observed value) &#247; Inventory

Accepted Answer

The answer of Days inventory on hand (DIO) is calculated...

Question 14

Given the following, calculate the EOQ for Mountaintop Medical Center:
Annual Usage in units :657
Cost per order :$42
Annual carrying cost/unit : 3.25
Average Lead Time for Delivery :1 Week

A) 10 units
B) 72 units
C) 92 units
D) 130 units

Accepted Answer

The answer of Given the following, calculate the EOQ for...

Question 15

EOQ works well when demand is stable. Describe how the EOQ formula can be used with variable demand.

Accepted Answer

The answer of EOQ works well when demand is stable....

Question 16

Describe some limitations of inventory ratio use in hospitals. How can they be addressed?

Accepted Answer

The answer of Describe some limitations of inventory ratio use...

Question 17

Differentiate between the various inventory valuation techniques described in the text.

Accepted Answer

The answer of Differentiate between the various inventory valuation techniques...

Deck 17: Financial Management of Inventory