Question 1

A batch of Raisin Bran that has been made at Kellogg's but not yet packaged in its final cereal box would be an example of what type of inventory?

Accepted Answer

The batch of Raisin Bran that has been made but not yet packaged in its final cereal box is an example of work in process (WIP) inventory, as it is still in the process of being transformed into a final product. Raw materials are the inputs used to create the product, finished goods are the final products ready for sale, and MRO supplies are used in the production process but are not part of the final product itself.

Question 2

Alpha Company places 10 orders per year with its supplier.Each order is for an amount exactly equal to the EOQ.Alpha has determined its annual inventory carrying cost is $2,000.Alpha carries no safety stock at all.What is Alpha's order cost per order?

Accepted Answer

Order cost per order = Total ordering cost / Total number of orders
Total ordering cost = Annual demand / EOQ * Ordering cost per order
Since each order is for EOQ, the annual demand is equal to 10 * EOQ. We are not given the order cost per order or the EOQ, so we cannot calculate the total ordering cost. However, we are given the annual inventory carrying cost which is $2,000. We know that the annual inventory carrying cost is equal to the product of the average inventory level and the inventory carrying cost per unit. Since Alpha carries no safety stock, the average inventory level is equal to half of the EOQ. Therefore, we can calculate the EOQ as EOQ = 2 * Annual inventory carrying cost / Inventory carrying cost per unit = 2 * 2,000 / EOQ * Unit cost. Simplifying, we get EOQ^2 = 8,000 / Unit cost. Multiplying both sides by Unit cost, we get EOQ^2 * Unit cost = 8,000. Since each order is for EOQ, the total cost of all orders in a year is EOQ times the unit cost, or EOQ * Unit cost = (EOQ^2 * Unit cost) / EOQ = EOQ * (EOQ * Unit cost) / EOQ = EOQ * (EOQ^2 * Unit cost / EOQ^2) = EOQ * 8,000 / EOQ^2 = 8,000 / (EOQ / 10)^2. Therefore, the total ordering cost is 8,000 / (EOQ / 10)^2, and the order cost per order is (8,000 / (EOQ / 10)^2) / 10 = 800 / (EOQ / 10)^2 = 800 / (EOQ^2 / 100) = 80,000 / EOQ^2. Since we have an expression for the order cost per order in terms of the EOQ, and we know the relationship between EOQ and the inventory carrying cost, the order cost per order must be independent of the inventory carrying cost. Therefore, the order cost per order is a constant, and we can calculate it using any value of EOQ. Using the formula for EOQ, we can find that EOQ = sqrt(8,000 / Unit cost) = sqrt(8,000 / 2) = sqrt(4,000) = 63.25. Therefore, the order cost per order is 80,000 / (63.25)^2 = $200.

Question 3

Jones Company has calculated that the EOQ for a particular item is 1,000 units.However,Jones does not have enough capital to order that many units each time,so it only orders 250 units at a time.This will result in:

Accepted Answer

B

Question 4

Safety stock exists for which of the following reasons?

Accepted Answer

Safety stock exists to provide protection against the uncertainties of supply and demand. It is a buffer stock that is maintained to ensure that there are enough goods available in case of unexpected fluctuations in demand or supply. It helps to prevent stockouts and backorders, and ensures that customers can be served in a timely manner. The other options (A and B) are not reasons for safety stock.

Question 5

University Bookstore buys women's polo T-shirts from a supplier according to the price schedule shown below.The store sells 500,000 T-shirts each year.The annual carrying cost of T-shirts is 25 percent,and the ordering cost is $40.  What order quantity would give the bookstore the lowest total acquisition cost? (Due to possible differences in rounding,choose the closest answer.)

Accepted Answer

The answer of University Bookstore buys women's polo T-shirts from...

Question 6

Ball Corporation sells aluminum cans to Anheuser-Busch to use in making six-packs of Budweiser.Anheuser-Busch has a warehouse located at its plant in St.Louis that contains boxes of empty cans received from Ball.From Anheuser-Busch's perspective,the cans in this warehouse represent:

Accepted Answer

The cans are considered raw materials and components inventory for Anheuser-Busch because they are yet to be filled with Budweiser, making them the initial inputs in the production process.

Question 7

Alpha Company places 10 orders per year with its supplier.Each order is for an amount exactly equal to the EOQ.Alpha's order cost has been determined to be $50 per order.Alpha carries no safety stock at all.What is Alpha's annual inventory carrying cost?

Accepted Answer

The answer of Alpha Company places 10 orders per year...

Question 8

Natalie's Cabinets makes cabinets at an average cost of $2,000.Last year,Natalie sold 5,000 units of the cabinets and had an annual turnover rate of four times.Natalie has estimated her inventory carrying cost to be 25 percent.What was Natalie's annual inventory carrying cost?

Accepted Answer

Natalie's annual inventory carrying cost is 25% of the average inventory value. The average inventory value is half of the annual sales value, which is 5,000 units * $2,000/unit * 4 (turnover rate) = $40,000,000. Therefore, the annual inventory carrying cost is $40,000,000 * 25% = $10,000,000.

Question 9

Johnson Company had beginning inventory of $1,000,000 and ending inventory of $1,200,000.Johnson has determined inventory carrying cost to be 25 percent.Johnson's inventory carrying cost was:

Accepted Answer

The formula for inventory carrying cost is:

Inventory Carrying Cost = Average Inventory x Inventory Carrying Rate

We can find the average inventory by adding beginning inventory and ending inventory and dividing by 2:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2 
= ($1,000,000 + $1,200,000) / 2 
= $1,100,000

Plugging in the values given:

Inventory Carrying Cost = $1,100,000 x 0.25 
= $275,000

Therefore, the answer is B: $275,000.

Question 10

Taxes and insurance costs are an example of which of the following costs?

Accepted Answer

Taxes and insurance costs are examples of carrying (or holding) costs, which are costs incurred to hold inventory, such as storage costs, depreciation, and insurance.

Question 11

Suppose demand is 45 units a month,average inventory is 60 units,and unit cost is $20.What is the annual inventory turnover?

Accepted Answer

Annual demand = 45 units/month x 12 months = 540 units
Inventory turnover = Annual demand / Average inventory = 540 units / 60 units = 9 times per year.

Therefore, the answer is choice B) 9.

Question 12

Independent demand inventory models can be used to determine:

Accepted Answer

Independent demand inventory models are used to determine when to buy (reorder point) and how much to buy (order quantity), as well as safety stock levels (to account for demand variability) and stock levels for regular and one-time buys. Therefore, all of the choices (A, B, and C) are correct.

Question 13

Jones Manufacturing Inc.purchases a component from a Chilean supplier.The demand for that component is exactly 70 units each day.The company is open for business 250 days each year.When the company reorders the product,the lead time from the supplier is exactly 10 days.The product costs $14.00.The company determined that its inventory carrying cost is 20 percent.The company's order cost is $30.00.If the company decides to order 1,750 units each time it places an order,what will be the total annual cost of this policy? (Do not include the product cost in your answer.)

Accepted Answer

First, we need to calculate how many orders will be placed in a year:
Annual demand = 70 units/day x 250 days/year = 17,500 units/year
Order quantity = 1,750 units/order
Number of orders = 17,500 units/year ÷ 1,750 units/order = 10 orders/year

Now, we can calculate the total annual cost:
Ordering cost = $30.00/order x 10 orders/year = $300.00/year
Annual inventory carrying cost = (average inventory level) x (inventory carrying cost rate)
To calculate the average inventory level, we need to know the time between orders, which is the reorder point (lead time demand) plus safety stock. Let's assume a safety stock of 0 units for this calculation:
Reorder point = lead time demand = 70 units/day x 10 days = 700 units
Average inventory level = (order quantity ÷ 2) + reorder point = (1,750 units/order ÷ 2) + 700 units = 1,075 units
Inventory carrying cost rate = 20%
Annual inventory carrying cost = average inventory level x inventory carrying cost rate = 1,075 units x 20% = $215.00/year

Total annual cost = ordering cost + annual inventory carrying cost = $300.00/year + $215.00/year = $515.00/year

Therefore, the best choice is C.

Question 14

Which of the following is NOT a role of inventory?

Accepted Answer

While having inventory can help ensure quality of finished goods by allowing for inspection and control of inventory levels, it is not a primary role of inventory. The primary roles of inventory are to balance supply and demand, buffer uncertainty in supply/demand, and enable geographical specialization.

Question 15

Blue Star Co.has been using the production order quantity inventory model.If annual demand,daily demand,and the production rate increase to four times their original amounts,which of the following is/a possible consequence?

Accepted Answer

When annual demand, daily demand, and the production rate all increase by four times, the production order quantity, which is influenced by the square root of the demand rate over the production rate (among other factors), will increase, but not linearly with these rates. The increase in both demand and production rates in the same proportion tends to balance out, leading to a square root effect on the order quantity, hence doubling it.

Question 16

John Jones of Jones Corporation determined that the cost related to processing an invoice from a supplier was approximately $100 per invoice.This cost is an example of:

Accepted Answer

The cost of processing an invoice falls under the category of order cost, which includes all costs associated with placing and receiving an order, such as processing paperwork, communication with suppliers, and scheduling deliveries. It is not an inventory holding cost or investment as it does not relate to the cost of storing or carrying inventory. It is also not a wasted expense as it is necessary for the procurement process.

Question 17

Next year a tire company wants to have an inventory turnover rate of 22 times per year.To achieve this turnover rate,what should be the average number of days of supply?

Accepted Answer

To calculate the average number of days of supply for a given inventory turnover rate, you divide the number of days in a year (365) by the turnover rate. For a turnover rate of 22 times per year, it's 365 / 22 = 16.6 days.

Question 18

Bryson Carpet Mills produces a variety of different carpets.Changing from production of one carpet to another involves a setup cost of $500.One particular carpet costs $8/yard to produce.Annual demand for this style is 50,000 yards.Bryson Mills produces carpet 200 days per year.The production process is most efficient when 2,000 yards/day are produced.Inventory carrying cost is estimated at 20 percent annually.What should be the production order quantity?

Accepted Answer

The production order quantity can be determined using the economic order quantity (EOQ) formula:

EOQ = sqrt((2DS)/H)

where 
D = annual demand = 50,000 yards 
S = setup cost = $500 
H = inventory carrying cost = 20% of cost per yard = 0.20 x $8 = $1.60

Plugging in these values, we get:

EOQ = sqrt((2 x 50,000 x 500)/1.60) = 5,976 yards (rounded to the nearest whole number)

Therefore, the best choice is B, to produce 5,976 yards of the particular carpet. This quantity minimizes the total annual inventory cost by balancing setup cost and inventory carrying cost.

Question 19

If beginning inventory is $1,000,000,ending inventory is $1,400,000,sales are $10,000,000,and anticipated sales are $50,000 per day,what is the days of supply?

Accepted Answer

Days of supply is calculated by dividing the ending inventory by the daily sales (anticipated sales per day). Here, $1,400,000 / $50,000 = 28 days.

Question 20

University Bookstore buys women's polo T-shirts from a supplier according to the price schedule shown below.The store sells 500,000 T-shirts each year.The annual carrying cost of T-shirts is 25 percent,and the ordering cost is $40.  The lowest total annual acquisition cost for the bookstore quantity is closest to: (Due to possible differences in rounding,choose the closest answer.)

Accepted Answer