Question 1

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

Accepted Answer

Ordering smaller quantities more often increases the frequency of placing orders, thereby increasing the annual ordering costs.

Question 2

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

Accepted Answer

C inventory items are typically low-value items that make up a large portion of the inventory but account for a small percentage of the total dollar usage.

Question 3

A stockout can potentially be expensive because of:

Accepted Answer

A stockout can lead to lost customers, lost sales, and back-order costs, making it potentially expensive.

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.

Accepted Answer

The answer of Every time an order is placed at...

Question 5

Which of the following represents the accounting equation?

Accepted Answer

The accounting equation is Assets = Liabilities + Owner's Equity, which represents the relationship between a company's resources and the claims on those resources.

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.

Accepted Answer

The answer of Given the following annual costs, calculate the...

Question 7

Days of supply is calculated as:

Accepted Answer

Days of supply is calculated as inventory on hand divided by average daily usage.

Question 8

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

Accepted Answer

The answer of What should the objectives be of a...

Question 9

Discuss the theory behind cash flow analysis.

Accepted Answer

The answer of Discuss the theory behind cash flow analysis....

Question 10

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

Accepted Answer

Capital refers to the amount of money that the owners have invested in the company.

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?

Accepted Answer

The answer of A company has 9,000 units on hand...

Question 12

The ABC principle is based on___________ law.

Accepted Answer

The ABC principle is based on Pareto's law, which states that roughly 80% of effects come from 20% of causes. This principle is often used in inventory management and prioritization.

Question 13

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

Accepted Answer

The answer of Identify the various rules for inventory management....

Question 14

What costa are used for inventory management decisions?

Accepted Answer

The answer of What costa are used for inventory management...

Question 15

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

Accepted Answer

The answer of If owners' equity is $1,000 and liabilities...

Question 16

What are anticipation inventories and why are they used?

Accepted Answer

The answer of What are anticipation inventories and why are...

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 $$\begin{array} { l l l } 
1 & 200 & 10 \ 
2 & 15,000 & 4 \
3 & 60,000 & 6 \
4 & 15,000 & 15 \
5 & 1,400 & 10 \
6 & 100 & 50 \
7 & 25,000 & 2 \
8 & 700 & 3 \
9 & 25,000 & 1 \
10 & 7,500 & 1
\end{array}$$

Accepted Answer

The answer of Analyze the following data to produce an...

Question 18

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

Accepted Answer

C items are typically low-value items that require simple inventory controls to ensure they are adequately stocked.

Question 19

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

Accepted Answer

The average cost method calculates the cost of inventory based on the average price of all units purchased, providing a consistent cost per unit.

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?

Accepted Answer

The answer of A company carries an average annual inventory...

Quiz 9: Inventory Fundamentals