Deck 20: Inventory Management, just-In-Time, and Simplified Costing Methods

Question 1

Freight in charges forms part of purchasing costs of inventory.

Answer 1

True

Question 2

Which of the following statements is true of costs associated with goods for sale?

A) Appraisal costs is a subcategory of shrinkage costs.
B) Special processing costs are always part of purchasing costs.
C) All inventory costs are not available in financial accounting systems.
D) Stockout costs are costs that arise when a company runs out of a particular item for which there is no customer demand.

Answer 2

C

Question 3

All inventory costs are available in financial accounting systems.

Answer 3

False

Question 4

Most firms try not to hold more inventory than necessary because shrinkage costs generally decrease when a firm's inventory increases.

Question 5

The opportunity cost of the stockout includes lost contribution margin on the sale not made plus any contribution margin lost on future sales due to customer ill will.

Question 6

Which of the following is the correct mathematical expression to calculate annual relevant ordering costs?

A) Demand in units for a specified period / (Relevant ordering cost per purchase order × Size of each order)
B) Size of each order × Relevant ordering cost per purchase order / Demand in units for a specified period
C) (Demand in units for a specified period / Size of each order) × Relevant ordering cost per purchase order
D) (Demand in units for a specified period - Size of each order) × Relevant ordering cost per purchase order

Question 7

Among different types of costs associated with inventory,the costs that result when features and characteristics of a product or service are not in conformance with the customer specifications are ________.

A) EOQ estimation costs
B) costs of quality
C) purchasing costs
D) shrinkage costs

Question 8

Which of the following statements is true of the the economic order quantity decision model?

A) The economic order quantity increases with higher demand and higher carrying costs and decreases with higher ordering costs.
B) The simplest version of the economic order quantity model assumes there are only ordering costs, carrying costs, stockout costs, and purchasing costs.
C) It assumes the purchase order lead time is not known with certainty.
D) The larger the order quantity, the lower the annual relevant ordering costs and the higher the annual relevant carrying costs.

Question 9

Shrinkage is measured by adding (a)the cost of the inventory recorded on the books in the absence of theft and other incidents just mentioned,and (b)the cost of inventory when physically counted.

Question 10

Purchasing costs arise in preparing and issuing purchase orders,receiving and inspecting the items included in the orders,and matching invoices received,purchase orders,and delivery records to make payments.

Question 11

Inventory management is the planning,organizing,and controlling activities that focus on the flow of materials into,through,and out of the organization.

Question 12

Among different types of costs associated with inventory,the opportunity cost of the investment tied up in inventory is a(n)________.

A) purchasing cost
B) ordering cost
C) stockout cost
D) carrying cost

Question 13

Managing inventories to increase net income 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.

Question 14

Among different types of costs associated with inventory,the incoming freight charges of inventories are ________.

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

Question 15

Among different types of costs associated with inventory,the costs of obtaining purchase approvals are ________.

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

Question 16

The costs that result when a company runs out of a particular item for which there is a customer demand are ________.

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

Question 17

Stockout costs arise when an organization experiences an ability to deliver its goods to its customers.

Question 18

Among different types of costs associated with inventory,four categories of quality costs are ________.

A) control costs, inspection costs, internal failure costs, and external failure costs
B) prevention costs, inspection costs, internal failure costs, and external failure costs
C) prevention costs, appraisal costs, internal failure costs, and external failure costs
D) prevention costs, control costs, internal failure costs, and external failure costs

Question 19

The costs that result from theft of inventory are ________.

A) shrinkage costs
B) external failure costs
C) stockout costs
D) costs of quality

Question 20

Which of the following statements is true of costs associated with goods for sale?

A) Information-gathering technology increases the reliability and timeliness of inventory information and increases the costs related to inventory.
B) Opportunity costs are not recorded in financial accounting systems because they are not a significant component in several cost categories.
C) The costs of receiving and inspecting the items are included in the purchase orders are ordering costs.
D) Opportunity costs are recorded in financial accounting systems but are a not significant component in several cost categories.

Question 21

Answer the following questions using the information below:
Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD; DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 312,000 DVDs at a rate of 6,000 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$114.50 \\ \text {arrying costs per package per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$4.50 \\\end{array}$


-What are the annual relevant ordering costs?

A) $9,057
B) $7,157
C) $8,266
D) $7,121

Question 22

Answer the following questions using the information below:
Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD; DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 312,000 DVDs at a rate of 6,000 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$114.50 \\ \text {arrying costs per package per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$4.50 \\\end{array}$


-What are the annual relevant carrying costs?

A) $7,122
B) $8,265
C) $9,057
D) $7,157

Question 23

Answer the following questions using the information below:
Vision Company sells optical equipment. Blitz Company manufactures special glass lenses. Vision orders 11,400 lenses per year, 200 per week, at $35 per lens. Blitz covers all shipping costs. Vision earns 25% on its cash investments. The purchase-order lead time is 2.5 weeks. Vision sells 225 lenses per week. The following data are available:
$\begin{array} { l } \text {Relevant ordering costs per purchase order }&\$41.25 \\ \text {Relevant insurance, materials handling, breakage, }& \\ \text { and so on, per year}&4.50 \\\end{array}$


-What is the economic order quantity for Vision?

A) 457 lenses
B) 328 lenses
C) 266 lenses
D) 161 lenses

Question 24

Answer the following questions using the information below:
Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD; DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 312,000 DVDs at a rate of 6,000 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$114.50 \\ \text {arrying costs per package per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$4.50 \\\end{array}$


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

A) 72.19 deliveries
B) 60.11 deliveries
C) 89.23 deliveries
D) 52.18 deliveries

Question 25

Under economic-order-quantity decision model,it is assumed that ________.

A) the quantity ordered can vary at each reorder point
B) demand, ordering costs, and carrying costs are uncertain
C) the purchasing cost per unit is affected by the order quantity
D) no inventory stockouts occur

Question 26

The purchase-order lead time is the ________.

A) time between placing an order and its delivery
B) time between receiving a customer order and producing the products
C) time between receiving a customer order and delivering the items
D) time required to correct errors in the defective products

Question 27

Answer the following questions using the information below:
Vision Company sells optical equipment. Blitz Company manufactures special glass lenses. Vision orders 11,400 lenses per year, 200 per week, at $35 per lens. Blitz covers all shipping costs. Vision earns 25% on its cash investments. The purchase-order lead time is 2.5 weeks. Vision sells 225 lenses per week. The following data are available:
$\begin{array} { l } \text {Relevant ordering costs per purchase order }&\$41.25 \\ \text {Relevant insurance, materials handling, breakage, }& \\ \text { and so on, per year}&4.50 \\\end{array}$


-What is the reorder point?

A) 500 lenses
B) 562.5 lenses
C) 1050 lenses
D) 1062.5 lenses

Question 28

Which of the following statements is true of the economic-order-quantity decision model?

A) It assumes purchasing costs are relevant because the cost per unit changes due to the quantity ordered.
B) It assumes that quality costs are considered only to the extent that these costs affect ordering or carrying costs.
C) It assumes that stockout costs are relevant even if no stockouts occur.
D) It assumes that ordering costs and carrying costs are irrelevant.

Question 29

Answer the following questions using the information below:
Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD; DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 312,000 DVDs at a rate of 6,000 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$114.50 \\ \text {arrying costs per package per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$4.50 \\\end{array}$


-What is the economic order quantity?

A) 64.08 packages
B) 21.04 packages
C) 37.50 packages
D) 72.03 packages

Question 30

The following information applies to Krynton Company,which supplies microscopes to laboratories throughout the country.Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation. $\begin{array}{lr}\text { Annual demand (weekly demand }=1 / 52 \text { of annual demand) } & 52,000 \text { units } \\\text { Orders per year } & 20 \\\text { Lead time in days } & 15 \text { days } \\\text { Cost of placing an order } & \$ 100\end{array}$ What is the reorder point?

A) 1,040 units
B) 2,143 units
C) 1,580 units
D) 3,080 units

Question 31

Miniature Company sells stuffed tigers.Birtal Inc.manufactures many different stuffed animals.Miniature orders 20,800 tigers per year,400 per week,at $15 per tiger.The manufacturer covers all shipping costs.Miniature earns 15% on its cash investments.The purchase-order lead time is 3 weeks.Miniature sells 310 tigers per week.The following data are available (based on management's estimates): $\begin{array}{cr}\text { Estimated ordering costs per purchase order }&\$22\\\text { Estimated insurance, materials handling, breakage, }\\\text { and so on, per year } & \$ 7 \\\text { Actual ordering costs per order } & \$ 25\end{array}$ What is the economic order quantity using the estimated amounts?

A) 637.7 stuffed tigers
B) 314.5 stuffed tigers
C) 191 stuffed tigers
D) 325 stuffed tigers

Question 32

The economic order quantity model completely ignores ________.

A) carrying costs
B) ordering costs
C) stockout costs
D) the size of a purchase order

Question 33

Answer the following questions using the information below:
Short Grass Incorporated is a distributor of golf balls. Martin's Golf Supplies is a local retail outlet which sells golf balls. Martin's purchases the golf balls from Short Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Short Grass Incorporated pays all incoming freight, and Martin's Golf Supplies does not inspect the balls due to Short Grass' reputation for high quality. Annual demand is 155,520 golf balls at a rate of 2,991 balls per week. Martin's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$125.00 \\ \text {arrying costs per carton per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$0.77 \\\end{array}$


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

A) $1,500.00
B) $1,978.60
C) $989.37
D) $3,000.00

Question 34

Answer the following questions using the information below:
Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD; DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 312,000 DVDs at a rate of 6,000 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$114.50 \\ \text {arrying costs per package per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$4.50 \\\end{array}$


-What are the relevant total costs?

A) $14,279
B) $18,114
C) $16,531
D) $14,278

Question 35

Beryl Company sells 500 flash drives per week.Purchase-order lead time is 1 1/2 weeks and the economic-order quantity is 1,125 units.What is the reorder point?

A) 1,687.5 units
B) 937.5 units
C) 750 units
D) 1,125 units

Question 36

Answer the following questions using the information below:
Short Grass Incorporated is a distributor of golf balls. Martin's Golf Supplies is a local retail outlet which sells golf balls. Martin's purchases the golf balls from Short Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Short Grass Incorporated pays all incoming freight, and Martin's Golf Supplies does not inspect the balls due to Short Grass' reputation for high quality. Annual demand is 155,520 golf balls at a rate of 2,991 balls per week. Martin's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$125.00 \\ \text {arrying costs per carton per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$0.77 \\\end{array}$


-What is the economic order quantity?

A) 180 cartons
B) 273 cartons
C) 270 cartons
D) 360 cartons

Question 37

Answer the following questions using the information below:
Short Grass Incorporated is a distributor of golf balls. Martin's Golf Supplies is a local retail outlet which sells golf balls. Martin's purchases the golf balls from Short Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Short Grass Incorporated pays all incoming freight, and Martin's Golf Supplies does not inspect the balls due to Short Grass' reputation for high quality. Annual demand is 155,520 golf balls at a rate of 2,991 balls per week. Martin's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$125.00 \\ \text {arrying costs per carton per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$0.77 \\\end{array}$


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

A) 2 deliveries
B) 6.0 deliveries
C) 7.91 deliveries
D) 12 deliveries

Question 38

Relevant total costs in the economic order quantity decision model equal relevant ordering costs plus relevant ________.

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

Question 39

Delinz Company can predict with virtual certainty the demand for its products.Delinz's sells 75 hams per week.Purchase-order lead time is 3 weeks and the economic-order quantity is 150 hams.What is the reorder point?

A) 675 hams
B) 225 hams
C) 450 hams
D) 150 hams

Question 40

Answer the following questions using the information below:
Short Grass Incorporated is a distributor of golf balls. Martin's Golf Supplies is a local retail outlet which sells golf balls. Martin's purchases the golf balls from Short Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72. Short Grass Incorporated pays all incoming freight, and Martin's Golf Supplies does not inspect the balls due to Short Grass' reputation for high quality. Annual demand is 155,520 golf balls at a rate of 2,991 balls per week. Martin's Golf Supplies earns 12% on its cash investments. The purchase-order lead time is one week. The following cost data are available:
$\begin{array} { l } \text { Relevant ordering costs per purchase order}&\$125.00 \\ \text {arrying costs per carton per year: }& \\ \text {Relevant insurance, materials handling, }& \\ \text {breakage, etc., per year }&\$0.77 \\\end{array}$


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

A) $1,500.00
B) $652.50
C) $2,152.50
D) $3,000.00

Question 41

What are the total relevant costs,assuming the quantity ordered equals 1,000 units?

A) $17,100
B) $16,500
C) $15,500
D) $19,100

Question 42

The reorder point is the quantity level of inventory at which a new purchase order is made.

Question 43

Answer the following questions using the information below:
The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.
$\begin{array}{lr}\text { Annual demand (weekly demand }=1 / 52 \text { of annual demand) } & 13,000 \text { units } \\\text { Orders per year as per EOQ model } & 13 \\\text { Lead time in days } & 15 \text { days } \\\text { Annual relevant carrying costs } & \$ 2,600\end{array}$

-If Premium Company has a safety stock of 480 units and the average daily demand is 60 units,how many days can be covered if the shipment from the supplier is delayed by 4 days?

A) 8 days
B) 4 days
C) 12 days
D) 7 days

Question 44

The EOQ model is solved using calculus but the key intuition is that relevant total costs are minimized when relevant ordering costs equal relevant carrying costs.

Question 45

Answer the following questions using the information below:
The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.
$\begin{array}{lr}\text { Annual demand (weekly demand }=1 / 52 \text { of annual demand) } & 13,000 \text { units } \\\text { Orders per year as per EOQ model } & 13 \\\text { Lead time in days } & 15 \text { days } \\\text { Annual relevant carrying costs } & \$ 2,600\end{array}$

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

A) 1,485 units
B) 1,000 units
C) 780 units
D) 3,000 units

Question 46

The optimal safety stock level is the quantity of safety stock that minimizes the sum of the annual relevant ________.

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

Question 47

Answer the following questions using the information below:
The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
$\begin{array} { l } \text {Relevant ordering costs per purchase order }&\$450 \\ \text {Relevant carrying costs per year for each package: }& \\ \text { Required annual return on investment}& 15\%\\ \text {Required other costs per wear }& \$4\\\end{array}$
Annual demand is 30,000 packages per year. The purchase price per package is $48.

-What is the annual relevant carrying costs?

A) $5,196
B) $6,971
C) $8,695
D) $3105.30

Question 48

Answer the following questions using the information below:
The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
$\begin{array} { l } \text {Relevant ordering costs per purchase order }&\$450 \\ \text {Relevant carrying costs per year for each package: }& \\ \text { Required annual return on investment}& 15\%\\ \text {Required other costs per wear }& \$4\\\end{array}$
Annual demand is 30,000 packages per year. The purchase price per package is $48.

-What is the economic order quantity?

A) 1,936.50 units
B) 1,414.21 units
C) 1,552.65 units
D) 2,598.07 units

Question 49

Which of the following statements is true of Allianz's EOQ system costs?

A) At EOQ, the annual relevant ordering costs is exactly the half of annual relevant carrying costs.
B) At EOQ, the annual relevant carrying costs is higher than the annual relevant ordering costs.
C) At EOQ, the annual relevant carrying costs is exactly the half of the annual relevant total costs.
D) At EOQ, the annual relevant carrying costs is equal to the annual relevant total costs.

Question 50

Answer the following questions using the information below:
The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
$\begin{array} { l } \text {Relevant ordering costs per purchase order }&\$450 \\ \text {Relevant carrying costs per year for each package: }& \\ \text { Required annual return on investment}& 15\%\\ \text {Required other costs per wear }& \$4\\\end{array}$
Annual demand is 30,000 packages per year. The purchase price per package is $48.

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

A) $17,390
B) $10,392
C) $13,942
D) $11,800

Question 51

Companies use safety stock as a buffer against unexpected decreases in demand.

Question 52

How many deliveries will be required at the economic order quantity?

A) 15.50 deliveries
B) 15 deliveries
C) 19.32 deliveries
D) 21.21 deliveries

Question 53

The annual relevant total costs are at a minimum when relevant ________.

A) ordering costs are greater than the relevant carrying costs
B) carrying costs are greater than the relevant ordering costs
C) carrying costs are equal to relevant ordering costs
D) carrying costs are equal to relevant purchasing costs

Question 54

The optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and ordering costs.

Question 55

Answer the following questions using the information below:
The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.
$\begin{array}{lr}\text { Annual demand (weekly demand }=1 / 52 \text { of annual demand) } & 13,000 \text { units } \\\text { Orders per year as per EOQ model } & 13 \\\text { Lead time in days } & 15 \text { days } \\\text { Annual relevant carrying costs } & \$ 2,600\end{array}$

-If Kenton Inc.has a safety stock of 175 units and the average weekly demand is 25 units,how many days can be covered if the shipment from the supplier is delayed by 12 days?

A) 12 days
B) 49 days
C) 61 days
D) 37 days

Question 56

To determine the Economic Order Quantity,the relevant ordering costs are maximized and the relevant carrying costs are minimized.

Question 57

Answer the following questions using the information below:
The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.
$\begin{array}{lr}\text { Annual demand (weekly demand }=1 / 52 \text { of annual demand) } & 13,000 \text { units } \\\text { Orders per year as per EOQ model } & 13 \\\text { Lead time in days } & 15 \text { days } \\\text { Annual relevant carrying costs } & \$ 2,600\end{array}$

-Assuming each order was made at the economic order quantity amount,what is the cost of placing an order?

A) $322 per order
B) $200 per order
C) $231 per order
D) $417 per order

Question 58

Answer the following questions using the information below:
The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items:
$\begin{array} { l } \text {Relevant ordering costs per purchase order }&\$450 \\ \text {Relevant carrying costs per year for each package: }& \\ \text { Required annual return on investment}& 15\%\\ \text {Required other costs per wear }& \$4\\\end{array}$
Annual demand is 30,000 packages per year. The purchase price per package is $48.

-What is the annual relevant ordering costs?

A) $5,196
B) $8,695
C) $6,971
D) $9,547

Question 59

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.

Question 60

Answer the following questions using the information below:
The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation.
$\begin{array}{lr}\text { Annual demand (weekly demand }=1 / 52 \text { of annual demand) } & 13,000 \text { units } \\\text { Orders per year as per EOQ model } & 13 \\\text { Lead time in days } & 15 \text { days } \\\text { Annual relevant carrying costs } & \$ 2,600\end{array}$

-What are the annual relevant ordering costs,assuming that relevant total costs are minimal?

A) $1,000
B) $2,253.33
C) $2,600
D) $6,000

Question 61

Just-in-time purchasing requires ________.

A) larger and less frequent purchase orders
B) smaller and less frequent purchase orders
C) smaller and more frequent purchase orders
D) larger and more frequent purchase orders

Question 62

Which of the following costs is a relevant inventory stockout cost under EOQ decision model?

A) The costs of obsolescence and costs of insurance that change with the quantity of inventory held.
B) The return forgone by investing capital in inventory rather than elsewhere.
C) The lost contribution margin on sales forgone as a result of customer dissatisfaction due to unavailability of goods.
D) The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.

Question 63

For inventory carrying costs,which of the following statements is true of the relevant opportunity cost of capital of inventory?

A) It is the return received by investing capital in inventory rather than elsewhere.
B) It is calculated as the per-unit costs of carrying inventory divided by the required rate of return .
C) It is the return foregone by investing capital elsewhere rather than in inventory.
D) It is calculated as the required rate of return multiplied by the per-unit costs of acquiring inventory.

Question 64

Increases in the carrying cost and decreases in the ordering cost per purchase order result in ________.

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

Question 65

The annual relevant carrying costs of inventory consists of the sum of the ________.

A) relevant ordering costs and the relevant costs of quality
B) relevant ordering costs plus the relevant opportunity costs of capital
C) relevant incremental costs plus the relevant opportunity costs of capital
D) relevant incremental costs plus the relevant ordering costs

Question 66

The executive vice president of Robotics,Inc.,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 vice president 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 67

The only product of a company has an annual demand of 14,000 units.The cost of placing an order is $70 and the cost of carrying one unit in inventory for one year is $20.
Required:
Determine the economic order quantity.

Question 68

An inventory item of Avizone Corp.has an average daily demand of 25 units with a maximum daily demand of 30 units.The economic order quantity is 500 units.Without safety stocks,the reorder point is 125 units.Safety stocks are set at 235 units.
Required:
a.Determine the reorder point with safety stocks.
b.Determine the maximum inventory level.
c.Determine the average lead time.

Question 69

Picture Company has one particular product that has an annual demand of 5,000 units.Total manufacturing costs per unit total $50.Ordering costs for the product total $60 per purchase order.Currently,the carrying costs per unit are 25% of manufacturing costs.
Required:
Determine the economic manufacturing order quantity.

Question 70

For supply item ABC,Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly.A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements.She has gathered the following information:
Required:
Determine the EOQ,average inventory,orders per year,average daily demand,reorder point,annual ordering costs,and annual carrying costs.

Question 71

Ralph 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 XXX he was able to recover the following:
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.

Question 72

Which of the following statements is true of just-in-time (JIT)purchasing?

A) In JIT purchasing, the optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and carrying costs.
B) JIT purchasing is guided solely by the EOQ model because that model emphasizes the tradeoff between relevant carrying and ordering costs.
C) In JIT purchasing, raw materials (or goods) are purchased so that products are delivered just as needed for production or sales.
D) Only disadvantage of JIT purchasing is the higher level carrying and inspection costs.

Question 73

The IBP Grocery orders most of its items in lot sizes of 10 units.Average annual demand per side of beef is 720 units per year.Ordering costs are $25 per order with an average purchasing price of $100.Annual inventory carrying costs are estimated to be 40% of the unit cost.
Required:
a.Determine the economic order quantity.
b.Determine the annual cost savings if the shop changes from an order size of 10 units to the economic order quantity.
c.Since the shelf life is limited,the IBP Grocery 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.

Question 74

Which of the following costs is a relevant inventory carrying cost under EOQ decision model?

A) The lost contribution margin on future sales forgone as a result of customer dissatisfaction in product quality.
B) The lost contribution margin on sales forgone because of the shortage of inventory.
C) The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.
D) The costs of receiving and inspecting inventory and moving the inventories to the warehouses.

Question 75

Why do conflicts arise between the EOQ model's optimal order quantity and the order quantity that managers regard as optimal?

Question 76

Discuss considerations that should be fully taken into account when developing inventory related relevant costs for use in an economic order quantity (EOQ)model.

Question 77

Clothes,Inc.,has an average annual demand for red,medium polo shirts of 25,000 units.The cost of placing an order is $80 and the cost of carrying one unit in inventory for one year is $25.
Required:
a.Use the economic-order-quantity 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 78

Which of the following statements is true of relevant inventory costs?

A) The salaries paid to clerks, stock keepers, and materials handlers are relevant carrying costs if they are unaffected by changes in inventory levels.
B) The costs of expediting an order from a supplier are relevant incremental costs of stockouts.
C) Warehouse rent, warehouse workers' salaries and costs of insurance, that change with the quantity of inventory held are irrelevant carrying costs.
D) Those ordering costs that change with the number of orders placed are irrelevant ordering costs.

Question 79

The costs of storage space owned are always relevant costs of carrying inventory.

Question 80

The square root in the EOQ model diminishes the effect of estimation errors because it results in the effects of the incorrect numbers becoming smaller.