Deck 17: Inventory Management, Just-In-Time and Simplified Costing Methods

Question 1

In managing inventory,the costs associated with inventory obsolescence are included in which of these cost categories?

A)Ordering costs
B)Labour costs
C)Quality costs
D)Carrying costs

Answer 1

D

Question 2

In managing inventory,what are the costs of goods acquired from suppliers including incoming freight or transportation costs known as?
Variant question

A)Carrying costs
B)Ordering costs
C)Stockout costs
D)Purchasing costs

Answer 2

D

Question 3

Which of the following industries is likely to have the highest cost of goods sold percentage relative to sales?

A)Drug manufacturers
B)Computer manufacturers
C)Retail organisations
D)The percentage will usually depend on the success of a particular company

Answer 3

C

Question 4

Retailers generally have a high percentage of net profit to revenues.

Question 5

Managing inventories to increase net profit requires companies to effectively manage costs associated with goods for sale.
Required:
Classify the below listed items as either Purchasing Costs,Ordering Costs,Carrying Costs,Stockout Costs,Costs of Quality or Shrinkage Costs.
$$\begin{array} { | l | l | } \hline\quad\quad\quad\quad\quad & \text { a. costs of obtaining purchase approvals } \\\hline & \text { b. costs resulting from embezzlement by employees } \\\hline & \text { c. internal failure costs } \\\hline & \text { d. coportunity cost of the investment tied up in inventory } \\\hline & \text { e. spoilage of stored items } \\\hline & \text { f. costs of lost sales as a result of not having an iten requested } \\& \text { by a customer } \\\hline& \text { g. costs of incoming freight } \\\hline & \text { h. costs of matching invoices received to the items and the } \\\hline & \text { i. curchase orders } \\\hline &\text { i. costs of wages for work-in-process inspections } \\\hline\end{array}$$
a.costs of obtaining purchase approvals
b.costs resulting from embezzlement by employees
c.internal failure costs
d.opportunity cost of the investment tied up in inventory
e.spoilage of stored items
f.costs of lost sales as a result of not having an item requested by a customer
g.costs of incoming freight
h.costs of matching invoices received to the items and the purchase orders
i.costs of wages for work-in-process inspections
j.costs that result from clerical errors

Question 6

In managing inventory,shrinkage is measured by comparing the cost of inventory on the books to the cost of inventory physically counted.

Question 7

In managing inventory,the costs that result when a company runs out of a particular item for which there is a customer demand are known as:

A)shortage costs.
B)stockout costs.
C)EOQ estimation costs.
D)shrinkage costs.

Question 8

What are the costs that result from the theft of inventory known as in the managing of inventory?
Variant question

A)Costs of quality
B)Stockout costs
C)External failure costs
D)Shrinkage costs

Question 9

In managing inventory,what are the costs that result when a company holds an inventory of goods for sale,known as?
Variant question

A)Interest costs
B)Opportunity costs
C)Purchasing costs
D)Carrying costs

Question 10

In managing inventories,the costs of preparing,issuing,and paying purchase orders,plus receiving and inspecting the items included in orders are known as:

A)carrying costs.
B)purchasing costs.
C)ordering costs.
D)stockout costs.

Question 11

In relation to inventory management,shrinkage costs result from water damage to clothing and other soft goods.

Question 12

While holding inventory for sale,the costs that arise are called carrying costs.
Variant question

Question 13

The freight and transportation costs on goods acquired from suppliers are generally included in purchasing costs.
Variant question

Question 14

More 'rush' orders occur when inventory data is shared throughout the supply chain.
Variant question

Question 15

In managing inventory,in which of these categories are the costs associated with inventory storage included in?
Variant question

A)Ordering costs
B)Labour costs
C)Quality costs
D)Carrying costs

Question 16

In managing inventory,what is a category of costs pertaining to quality?
Variant question

A)Ordering costs
B)Purchasing costs
C)Prevention costs
D)Stockout costs

Question 17

All inventory costs are recorded in the financial accounting system.

Question 18

The planning,organising,and controlling activities that focus on the flow of materials into,through,and from the organisation is called inventory management.
Variant question

Question 19

In managing inventory,the costs that result when features and characteristics of a product or service are not in conformance with the specifications are known as:

A)inspection costs.
B)design costs.
C)costs of quality.
D)purchasing costs.

Question 20

The costs of expediting an order from a supplier in response to a stockout include the additional ordering costs,plus any associated transportation costs.

Question 21

Answer the following questions using the information below:
The Katoomba Furniture company produces a specialty dining table,and has the following information available concerning its inventory items:
$\begin{array}{ll}\text { Relevant ordering costs per purchase order } & \$ 250 \\\text { Relevant carrying costs per year: } & \\\text { Required annual return on investment } & 10 \% \\\text { Required other costs per year } & \$ 14.00\end{array}$
Annual demand is 1000 tables per year.The purchase price per table is $1600.

-What is the economic order quantity (EOQ)?

A)150 units
B)54 units
C)100 units
D)75 units

Question 22

Answer the following questions using the information below:
The Katoomba Furniture company produces a specialty dining table,and has the following information available concerning its inventory items:
$\begin{array}{ll}\text { Relevant ordering costs per purchase order } & \$ 250 \\\text { Relevant carrying costs per year: } & \\\text { Required annual return on investment } & 10 \% \\\text { Required other costs per year } & \$ 14.00\end{array}$
Annual demand is 1000 tables per year.The purchase price per table is $1600.

-The annual relevant total costs are at a minimum when relevant:

A)carrying costs are equal to relevant ordering costs.
B)ordering costs are greater than the relevant carrying costs.
C)carrying costs are greater than the relevant ordering costs.
D)None of these answers are correct.

Question 23

Answer the following questions using the information below:
The Katoomba Furniture company produces a specialty dining table,and has the following information available concerning its inventory items:
$\begin{array}{ll}\text { Relevant ordering costs per purchase order } & \$ 250 \\\text { Relevant carrying costs per year: } & \\\text { Required annual return on investment } & 10 \% \\\text { Required other costs per year } & \$ 14.00\end{array}$
Annual demand is 1000 tables per year.The purchase price per table is $1600.

-What are the total relevant costs,assuming the quantity ordered equals 50 units?

A)$4000
B)$3500
C)$5000
D)$9350

Question 24

Answer the following questions using the information below:
The Katoomba Furniture company produces a specialty dining table,and has the following information available concerning its inventory items:
$\begin{array}{ll}\text { Relevant ordering costs per purchase order } & \$ 250 \\\text { Relevant carrying costs per year: } & \\\text { Required annual return on investment } & 10 \% \\\text { Required other costs per year } & \$ 14.00\end{array}$
Annual demand is 1000 tables per year.The purchase price per table is $1600.

-How many deliveries will be required at the economic order quantity (EOQ)?

A)5.1 deliveries
B)8.2 deliveries
C)1.0 delivery
D)18.5 deliveries

Question 25

An assumption of the economic-order-quantity (EOQ)decision model is that:
Variant question

A)no stockouts occur.
B)the quantity ordered can vary at each reorder point.
C)demand ordering costs and carrying costs fluctuate.
D)there will be timely labour costs.

Question 26

Answer the following questions using the information below:
Appleby Incorporated is a distributor of golf balls.Kel's Golf Supplies is a local retail outlet which sells golf balls.Kel's purchases the golf balls from Appleby Incorporated at $0.75 per ball;the golf balls are shipped in cartons of 72.Appleby Incorporated pays all incoming freight,and Kel's Golf Supplies does not inspect the balls due to Appleby' reputation for high quality.Annual demand is 172 800 golf balls at a rate of 3322 balls per week.Kel's Golf Supplies earns 12% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
Relevant ordering costs per purchase order $\quad\quad\quad\$ 125.00$
Carrying costs per carton per year:
Relevant insurance, materials handling,
breakage, etc,, per year $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$ 0.77$

-If Kel's makes an order (1/12 of annual demand)once per month,what are the relevant total costs?

A)$2085.67
B)$1500
C)$2225.00
D)$3000.00

Question 27

Answer the following questions using the information below:
Appleby Incorporated is a distributor of golf balls.Kel's Golf Supplies is a local retail outlet which sells golf balls.Kel's purchases the golf balls from Appleby Incorporated at $0.75 per ball;the golf balls are shipped in cartons of 72.Appleby Incorporated pays all incoming freight,and Kel's Golf Supplies does not inspect the balls due to Appleby' reputation for high quality.Annual demand is 172 800 golf balls at a rate of 3322 balls per week.Kel's Golf Supplies earns 12% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
Relevant ordering costs per purchase order $\quad\quad\quad\$ 125.00$
Carrying costs per carton per year:
Relevant insurance, materials handling,
breakage, etc,, per year $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$ 0.77$

-What is the economic order quantity (EOQ)?

A)200 cartons
B)288 cartons
C)388 cartons
D)300 cartons

Question 28

The purchase-order lead time is the:

A)difference between the products ordered and the products received.
B)difference between the times an order is placed and its delivery.
C)discrepancies in purchase orders.
D)time required to correct errors in the products received.

Question 29

Relevant total costs in the economic-order-quantity (EOQ)decision model equal relevant ordering costs plus relevant:

A)purchasing costs.
B)carrying costs.
C)quality costs.
D)stockout costs.

Question 30

The economic order quantity (EOQ)(EOQ)ignores:

A)purchasing costs.
B)relevant ordering costs.
C)stockout costs.
D)Both A and C are correct.

Question 31

Answer the following questions using the information below:
Appleby Incorporated is a distributor of golf balls.Kel's Golf Supplies is a local retail outlet which sells golf balls.Kel's purchases the golf balls from Appleby Incorporated at $0.75 per ball;the golf balls are shipped in cartons of 72.Appleby Incorporated pays all incoming freight,and Kel's Golf Supplies does not inspect the balls due to Appleby' reputation for high quality.Annual demand is 172 800 golf balls at a rate of 3322 balls per week.Kel's Golf Supplies earns 12% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
Relevant ordering costs per purchase order $\quad\quad\quad\$ 125.00$
Carrying costs per carton per year:
Relevant insurance, materials handling,
breakage, etc,, per year $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$ 0.77$

-Purchasing at the EOQ recommended level,what are the relevant total costs?

A)$3000.00
B)$2085.67
C)$1500.00
D)$2225.00

Question 32

Answer the following questions using the information below:
The Katoomba Furniture company produces a specialty dining table,and has the following information available concerning its inventory items:
$\begin{array}{ll}\text { Relevant ordering costs per purchase order } & \$ 250 \\\text { Relevant carrying costs per year: } & \\\text { Required annual return on investment } & 10 \% \\\text { Required other costs per year } & \$ 14.00\end{array}$
Annual demand is 1000 tables per year.The purchase price per table is $1600.

-What are the relevant total costs at the economic order quantity (EOQ)?

A)$3500
B)$1000
C)$9328
D)$1500

Question 33

Answer the following questions using the information below:
Appleby Incorporated is a distributor of golf balls.Kel's Golf Supplies is a local retail outlet which sells golf balls.Kel's purchases the golf balls from Appleby Incorporated at $0.75 per ball;the golf balls are shipped in cartons of 72.Appleby Incorporated pays all incoming freight,and Kel's Golf Supplies does not inspect the balls due to Appleby' reputation for high quality.Annual demand is 172 800 golf balls at a rate of 3322 balls per week.Kel's Golf Supplies earns 12% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
Relevant ordering costs per purchase order $\quad\quad\quad\$ 125.00$
Carrying costs per carton per year:
Relevant insurance, materials handling,
breakage, etc,, per year $\quad\quad\quad\quad\quad\quad\quad\quad\quad\quad\$ 0.77$

-Purchasing at the EOQ recommended level,how many deliveries will be made during each time period?

A)2 deliveries
B)12 deliveries
C)8.3 deliveries
D)6.0 deliveries

Question 34

The reorder point is simplest to compute when:

A)the safety stock amount never varies.
B)the number of units sold varies.
C)the relevant ordering costs and the relevant carrying costs are equal.
D)both demand and purchase-order lead times are known with certainty.

Question 35

Which of the following statements about the economic-order-quantity (EOQ)decision model is FALSE?

A)It assumes quality costs are irrelevant if quality is unaffected by the number of units purchased.
B)It assumes stockout costs are irrelevant if no stockouts occur.
C)It assumes purchasing costs are relevant when the cost per unit changes due to the quantity ordered.
D)It assumes ordering costs and carrying costs are relevant.

Question 36

Armidale Distributors is a distributor of DVDs.El Cheapo Electronics is a local retail outlet which sells blank and recorded DVDs.El Cheapo Electronics purchases DVDs from Armidale Distributors at $0.50 per DVD;DVDs are shipped in packages of 100.Armidale Distributors pays all incoming freight,and El Cheapo Electronics does not inspect the DVDs due to Armidale Distributors' reputation for high quality.Annual demand is 104 000 DVDs at a rate of 2000 DVDs per week.El Cheapo Electronics earns 20% on its cash investments.The purchase-order lead time is two weeks.The following cost data are available:
$\begin{array}{llr} \text {Relevant ordering costs per purchase order } &\$ 45.50\\ \text { Carrying costs per package per year: } &\\ \text { Relevant insurance, materials handling,} &\\ \text { breakage, etc, per year } &\$ 2.50\\\end{array}$

What is the required dollar annual return on investment per package?

A)$2.50
B)$50.00
C)$10.00
D)$0.50

Question 37

Answer the following questions using the information below:
Computer Supplies is a distributor of DVDs.Music 4U is a local retail outlet which sells blank and recorded DVDs.Music 4U purchases DVDs from Computer Supplies at $0.25 per DVD;DVDs are shipped in packages of 100.Computer Supplies pays all incoming freight,and Music 4U does not inspect the DVDs due to Computer Supplies' reputation for high quality.Annual demand is 416 000 DVDs at a rate of 8000 DVDs per week.Music 4U earns 15% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
Relevant ordering costs per purchase order $\quad\quad\$ 94.50$
Carrying costs per package per year:
Relevant insurance, materials handling,
breakage, etc, per year $\quad\$ 3.50$

-What is the economic order quantity (EOQ)?

A)200 packages
B)874 packages
C)652 packages
D)330 packages

Question 38

Tamworth Country Music sells 250 DVDs per week.Purchase-order lead time is 1.5 weeks and the economic-order quantity is 550 units.What is the reorder point?

A)1125 units
B)375 units
C)750 units
D)250 units

Question 39

Answer the following questions using the information below:
Computer Supplies is a distributor of DVDs.Music 4U is a local retail outlet which sells blank and recorded DVDs.Music 4U purchases DVDs from Computer Supplies at $0.25 per DVD;DVDs are shipped in packages of 100.Computer Supplies pays all incoming freight,and Music 4U does not inspect the DVDs due to Computer Supplies' reputation for high quality.Annual demand is 416 000 DVDs at a rate of 8000 DVDs per week.Music 4U earns 15% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
Relevant ordering costs per purchase order $\quad\quad\$ 94.50$
Carrying costs per package per year:
Relevant insurance, materials handling,
breakage, etc, per year $\quad\$ 3.50$

-How many deliveries will be made during each time period?

A)12.6 deliveries
B)32.0 deliveries
C)26.0 deliveries
D)29.4 deliveries

Question 40

Answer the following questions using the information below:
Computer Supplies is a distributor of DVDs.Music 4U is a local retail outlet which sells blank and recorded DVDs.Music 4U purchases DVDs from Computer Supplies at $0.25 per DVD;DVDs are shipped in packages of 100.Computer Supplies pays all incoming freight,and Music 4U does not inspect the DVDs due to Computer Supplies' reputation for high quality.Annual demand is 416 000 DVDs at a rate of 8000 DVDs per week.Music 4U earns 15% on its cash investments.The purchase-order lead time is one week.The following cost data are available:
Relevant ordering costs per purchase order $\quad\quad\$ 94.50$
Carrying costs per package per year:
Relevant insurance, materials handling,
breakage, etc, per year $\quad\$ 3.50$

-What are the relevant total costs?

A)$1951.70
B)$3583.77
C)$6150.50
D)$2560.20

Question 41

Answer the following questions using the information below:
The following information applies to Dental Labs Plus,which supplies dental burs (used in dental drills)to dentists throughout Victoria.Dental Labs Plus purchases the dental burs from a manufacturer which has a reputation for very high quality in its manufacturing operation.
$$\begin{array} { l l } \text { Antual demand (weekly demand = 1/52 of annual demand) } & 31200 \text { units } \\\text { Orders per year } & 25 \\\text { Lead time in days } & 20 \text { days } \\\text { Cost of placing an order } & \$ 100\end{array}$$

-What are the annual relevant carrying costs,assuming each order was made at the economic-order-quantity (EOQ)amount?

A)$1000
B)$6000
C)$2500
D)$200

Question 42

The annual relevant total costs are at a minimum where relevant ordering costs of inventory and relevant carrying costs are equal.

Question 43

Answer the following questions using the information below:
The following information applies to Dental Labs Plus,which supplies dental burs (used in dental drills)to dentists throughout Victoria.Dental Labs Plus purchases the dental burs from a manufacturer which has a reputation for very high quality in its manufacturing operation.
$$\begin{array} { l l } \text { Antual demand (weekly demand = 1/52 of annual demand) } & 31200 \text { units } \\\text { Orders per year } & 25 \\\text { Lead time in days } & 20 \text { days } \\\text { Cost of placing an order } & \$ 100\end{array}$$

-What is the economic order quantity (EOQ)assuming each order was made at the economic-order-quantity (EOQ)amount?

A)1560 units
B)1040 units
C)1248 units
D)500 units

Question 44

Sports Uniforms Ltd has an average annual demand for red,large polo shirts of 30 000 units.The cost of placing an order is $75 and the cost of carrying one unit in inventory for one year is $30.
Required:
a.Use the economic-order-quantity (EOQ)model to determine the optimal order size.
b.Determine the reorder point assuming a lead time of 10 days and a work year of 250 days.
c.Determine the safety stock required to prevent stockouts assuming the maximum lead time is 20 days and the maximum daily demand is 125 units.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 45

What are the annual relevant carrying costs of inventory comprised of?
Variant question

A)Incremental costs plus the carrying costs
B)Incremental costs plus the opportunity costs of capital
C)Ordering costs and carrying costs
D)Stockout costs and carrying costs

Question 46

The simplest version of the economic order quantity (EOQ)model incorporates only ordering costs,carrying costs and purchasing costs into the calculation.

Question 47

Decreases in the ordering cost per purchase order and increases in the carrying result in:
Variant question

A)larger relevant total costs.
B)smaller relevant total costs.
C)smaller EOQ amounts.
D)larger EOQ amounts.

Question 48

Answer the following questions using the information below:
North Ryde Optics sells optical equipment.Vision Lenses manufactures special glass lenses.North Ryde Optics orders 10 400 lenses per year,200 per week at $20 per lens.Vision Lenses covers all shipping costs.North Ryde Optics earns 30% on its cash investments.The purchase-order lead time is 2.5 weeks.North Ryde Optics sells 250 lenses per week.The following data are available:
Relevant ordering costs per purchase order $\quad\quad\quad \$ 21.25$
Relevant insurance, materials handling, breakage,
and so on, per year $\quad\quad\quad\quad\$2.50$


-What is the economic order quantity (EOQ)for North Ryde Optics?

A)325 lenses
B)210 lenses
C)297 lenses
D)228 lenses

Question 49

The only product of a company has an annual demand of 2000 units.The cost of placing an order is $40 and the cost of carrying one unit in inventory for one year is $16.
Required:
Determine the economic order quantity (EOQ).

Question 50

Cool Enterprises has one particular product that has an annual demand of 1000 units.Total manufacturing costs per unit total $40 and setup costs per batch are $15.Direct material ordering costs for the product total $10 per order.Currently,the carrying costs per unit are 25% of manufacturing costs.
Required:
Determine the economic manufacturing order quantity.

Question 51

Answer the following questions using the information below:
North Ryde Optics sells optical equipment.Vision Lenses manufactures special glass lenses.North Ryde Optics orders 10 400 lenses per year,200 per week at $20 per lens.Vision Lenses covers all shipping costs.North Ryde Optics earns 30% on its cash investments.The purchase-order lead time is 2.5 weeks.North Ryde Optics sells 250 lenses per week.The following data are available:
Relevant ordering costs per purchase order $\quad\quad\quad \$ 21.25$
Relevant insurance, materials handling, breakage,
and so on, per year $\quad\quad\quad\quad\$2.50$


-What is the reorder point?

A)415.5 lenses
B)625 lenses
C)397.5 lenses
D)441 lenses

Question 52

An inventory item of Nullabor Manufacturing has an average daily demand of 20 units with a maximum daily demand of 24 units.The economic order quantity (EOQ)is 200 units.Without safety stocks,the reorder point is 50 units.Safety stocks are set at 94 units.
Required:
a.Determine the reorder point with safety stocks.
b.Determine the maximum inventory level.
c.Determine the average lead time.
d.Determine the maximum lead time.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 53

The optimal safety stock level is the quantity of safety stock that minimises the sum of the annual relevant:

A)ordering costs and purchasing costs.
B)stockout costs and carrying costs.
C)ordering costs and carrying costs.
D)ordering costs and stockout costs.

Question 54

Retailers often hold a fixed level of safety stock to make sure they will be able to fulfil customers' needs,when they are uncertain about demand for their products or availability of their products from the suppliers.
Variant question

Question 55

Answer the following questions using the information below:
The following information applies to Dental Labs Plus,which supplies dental burs (used in dental drills)to dentists throughout Victoria.Dental Labs Plus purchases the dental burs from a manufacturer which has a reputation for very high quality in its manufacturing operation.
$$\begin{array} { l l } \text { Antual demand (weekly demand = 1/52 of annual demand) } & 31200 \text { units } \\\text { Orders per year } & 25 \\\text { Lead time in days } & 20 \text { days } \\\text { Cost of placing an order } & \$ 100\end{array}$$

-What is the reorder point?

A)1560 units
B)1714 units
C)780 units
D)1680 units

Question 56

To determine the Economic Order Quantity,the relevant ordering costs are minimised and the relevant carrying costs are maximised.

Question 57

Bendigo Deli sells 25 hams per week.Purchase-order lead time is 2 weeks and the economic-order quantity is 75 hams.What is the reorder point?

A)75 hams
B)30 hams
C)50 hams
D)25 hams

Question 58

The Economic Order Quantity decreases with carrying costs,and increases with demand and ordering costs.
Variant question

Question 59

Sports Uniforms Ltd has an average annual demand for blue,medium polo shirts of 20 000 units.The cost of placing an order is $70 and the cost of carrying one unit in inventory for one year is $25.
Required:
a.Use the economic-order-quantity (EOQ)model to determine the optimal order size.
b.Determine the reorder point assuming a lead time of 10 days and a work year of 250 days.
c.Determine the safety stock required to prevent stockouts assuming the maximum lead time is 20 days and the maximum daily demand is 125 units.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 60

The major relevant costs in maintaining safety stock are:
Variant question

A)ordering costs and stockout costs.
B)stockout costs and carrying costs.
C)ordering costs and purchasing costs.
D)carrying costs and purchasing costs.

Question 61

Due to unprecedented growth during the year,Flowers by Kelly decided to use some of its surplus cash to increase the size of several inventory order quantities that had been previously determined using an EOQ model.
Required:
Identify whether increasing the size of inventory orders will increase,decrease,or have no effect on each of the following items.
$$\begin{array} { | l | l | } \hline \quad \quad \quad \quad& \text { a. Average inventory } \\\hline & \text { b. Cost of goods sold } \\\hline & \text { c. Number of orders per year } \\\hline & \text { d. Total annual carrying costs } \\\hline & \text { e. Total annual carrying and ordering costs } \\\hline & \text { f. Total annual ordering costs } \\\hline\end{array}$$
a.Average inventory
b.Cost of goods sold
c.Number of orders per year
d.Total annual carrying costs
e.Total annual carrying and ordering costs
f.Total annual ordering costs

Question 62

A conflict between the EOQ model's optimal order quantity and the order quantity the purchasing manager,evaluated on conventional accounting numbers,regarded as optimal is considered a(n):

A)problem for the performance evaluation system to resolve.
B)goal congruence.
C)problem for the chief financial officer to resolve.
D)opportunity cost.

Question 63

The economic order quantity (EOQ)model solely guides just-in-time purchasing.
Variant question

Question 64

If Ballart Collectibles Inc.has a safety stock of 70 units and the average weekly demand is 21 units,how many days can be covered if the shipment from the supplier is delayed?

A)21 days
B)23.3 days
C)35 days
D)3.3 days

Question 65

Taronga Toys sells stuffed wombats.Products Inc.manufactures many different stuffed animals.Taronga Toys orders 10 400 wombats per year,200 per week,at $35 per koala.The manufacturer covers all shipping costs.Taronga Toys earns 10% on its cash investments.The purchase-order lead time is 3 weeks.Taronga Toys sells 185 wombats per week.The following data are available (based on management's estimates):
Variant question
Estimated ordering costs per purchase order $\quad \$ 10$
Estimated insurance, materials handling, breakage,
and so on, per year $\$ 3$
Actual ordering costs per order $\$ 15$
Using the estimated amounts above,what is the economic order quantity (EOQ)?

A)119 stuffed wombats
B)335 stuffed wombats
C)325 stuffed wombats
D)273 stuffed wombats

Question 66

If Freemantle Ferry Company has a safety stock of 240 units and the average daily demand is 30 units,how many days can be covered if the shipment from the supplier is delayed by 12 days?

A)12.0 days
B)6.7 days
C)8.0 days
D)10.0 days

Question 67

The annual relevant carrying costs of inventory consist of incremental costs plus the opportunity cost of capital.

Question 68

The CEO of Robotics Limited is concerned because the cost of materials has not been in line with the budget for several periods,even after implementing an EOQ model.The company has the normal direct material variance computations of price and efficiency at the end of each month.The price variance of the direct materials used is usually near expectations.The CEO does not understand how the budget differences are always larger than the material price variances.
Required:
What explanation can you give for the evaluation problems presented?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 69

An inventory item of Kalgoorie Manufacturing has an average daily demand of 30 units with a maximum daily demand of 27 units.The economic order quantity (EOQ)is 250 units.Without safety stocks,the reorder point is 50 units.Safety stocks are set at 112 units.
Required:
a.Determine the reorder point with safety stocks.
b.Determine the maximum inventory level.
c.Determine the average lead time.
d.Determine the maximum lead time.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 70

Katoomba Horticulture Company has been ordering 150 units of Liquifeed on the recommendation of the salesperson who calls on the company each month.A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity (EOQ)method and its supporting decision elements.She has gathered the following information:
$$\begin{array} { | l | l | } \hline \text { Annual demand in units } & 350 \\\hline \text { Days used per year } & 365 \\\hline \text { Lead time, in days } & 12 \\\hline \text { Ordering costs } & \$ 110 \\\hline \text { Annual unit carrying costs } & \$ 25 \\\hline\end{array}$$
Required:
Determine the EOQ,average inventory,orders per year,average daily demand,reorder point,annual ordering costs and annual carrying costs.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question 71

Placing smaller purchase orders with suppliers is a principle defining a Just-in-time inventory system: .
Variant question

Question 72

The ________ describes the flow of goods,services,and information from the initial sources of materials and services to the delivery of products to consumers.

A)customer list
B)supply chain
C)enterprise requirements plan (ERP)
D)material requirements plan (MRP)

Question 73

If Freemantle Engineering Company has a safety stock of 36 units of a particular item and the average monthly demand is 270 units,how many days can be covered if the shipment from the supplier is delayed by 12 days? Assume a 360 day year.

A)8.0 days
B)12.0 days
C)4.0 days
D)6.7 days

Question 74

Rockhampton Company was in the process of completing the quarterly planning for the purchasing department when a major computer malfunction lost most of his data.For direct material QBJ,he was able to recover the following:
$$\begin{array} { | l | l | } \hline \text { Average inventory level of QBJ } & 400 \\\hline \text { Orders per year } & 30 \\\hline \text { Average daily demand } & 26 \\\hline \text { Working days per year } & 250 \\\hline \text { Annual ordering costs } & \$ 4000 \\\hline \text { Annual carrying costs } & \$ 6000 \\\hline\end{array}$$
Ralph purchases at the EOQ quantity level.
Required:
Determine the annual demand,the cost of placing an order,the annual carrying cost of one unit,and the economic order quantity (EOQ).
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Question 75

Healesville Toys sells stuffed koalas.Products Inc.manufactures many different stuffed animals.Healesville Toys orders 15 600 koalas per year,300 per week,at $25 per koala.The manufacturer covers all shipping costs.Healesville Toys earns 12% on its cash investments.The purchase-order lead time is 3 weeks.Healesville Toys sells 210 koalas per week.The following data are available (based on management's estimates):
Estimated ordering costs per purchase order $\quad \$ 10$
Estimated insurance, materials handling, breakage,
and so on, per year $\$ 3$
Actual ordering costs per order $\$ 15$
What is the economic order quantity (EOQ)using the estimated amounts?

A)325 stuffed koalas
B)361 stuffed koalas
C)119 stuffed koalas
D)273 stuffed koalas

Question 76

Gosford Fruit & Vegetables orders most of its items in lot sizes of 15 units.Average annual demand per kilo of kumara is 900 units per year.Ordering costs are $34.15 per order with an average purchasing price of $150.Annual inventory carrying costs are estimated to be 40% of the unit cost.
Required:
a.Determine the economic order quantity (EOQ).
b.Determine the annual cost savings if the shop changes from an order size of 15 units to the economic order quantity (EOQ).
c.Since the shelf life is limited,the Gosford Fruit & Vegetables must keep the inventory moving.Assuming a 360-day year,determine the optimal lot size under each of the following: (1)a 20-day shelf life and (2)a 10-day shelf life.
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Question 77

As it pertains to purchase orders,what are requirements of just-in-time systems?
Variant question

A)Larger and more frequent purchase orders
B)Larger and less frequent purchase orders
C)Smaller and less frequent purchase orders
D)Smaller and more frequent purchase orders

Question 78

The return foregone by investing capital in inventory rather than elsewhere is referred to as the relevant opportunity cost of capital in relation to inventory.
Variant question

Question 79

Which essential costs should be considered when developing inventory-related relevant costs for use in an economic order quantity (EOQ)model? Why?
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Question 80

Redfern Butchery orders most of its items in lot sizes of 10 units.Average annual demand per side of venison is 720 units per year.Ordering costs are $32.50 per order with an average purchasing price of $130.Annual inventory carrying costs are estimated to be 40% of the unit cost.
Required:
a.Determine the economic order quantity (EOQ).
b.Determine the annual cost savings if the shop changes from an order size of 10 units to the economic order quantity (EOQ).
c.Since the shelf life is limited,the Redfern Butchery must keep the inventory moving.Assuming a 360-day year,determine the optimal lot size under each of the following: (1)a 20-day shelf life and (2)a 10-day shelf life.
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