Deck 4: Inventory Management

Question 1

What is the financial manager's main concern with inventory management?

A)the total cost of capital tied up in inventory
B)costs of holding inventory
C)ordering costs
D)the sales effect of the company's inventory

Answer 1

A

Question 2

A larger inventory order quantity _____________ ordering costs but _____________ holding costs,assuming both are measured over a specific period of time.

A)increases,decreases
B)has no effect on,increases
C)has not effect on,decreases
D)decreases,increases

Answer 2

D

Question 3

Focusing on the present value of total inventory-related cash flows instead of the amount of inventory investment indicates the managers' emphasis should be on

A)all inventory-related expenses
B)the inventory turnover ratio
C)the economic order quantity
D)none of the above

Answer 3

A

Question 4

Holding extra inventory to cushion against an unexpected increase in demand illustrates the _____________ motive.

A)speculative
B)precautionary
C)transaction
D)just-in-time

Question 5

In the EOQ model,the inventory level at which an order should be placed is called

A)the reorder point
B)the safety stock level
C)the buffer inventory level
D)the daily usage rate

Question 6

The general manager of a steel mill is pretty sure that the demand for and price of steel will be increasing sharply within the next six months due to a sudden boom in the housing market.If he increases current production and inventories corresponding to his belief,his action would be indicative of the _____________ motive for holding inventory.

A)Speculative
B)precautionary
C)transaction
D)just-in-time

Question 7

A company's marketing manager is worried about ____________ stock-outs while production manger is concerned with _____________ stock-outs.

A)raw material,work-in-process
B)work-in-process,raw material
C)work-in-process,finished goods
D)finished goods,raw material and work-in-process

Question 8

Restrictive assumptions used to develop and use the basic EOQ model include all of the following except:

A)a non constant order cost per order
B)a constant cost of holding each unit of inventory
C)a very accurate inventory demand forecast
D)a constant rate of inventory usage

Question 9

The valuation approach to making short-term financial decisions uses discounting to assess shareholder wealth effects.Using a cash flow timeline to assess various inventory purchase quantities is premised on an objective which should lead to enhanced shareholder wealth,which is

A)maximizing return on inventory investment
B)minimizing the sum of inventory holding and ordering costs
C)minimizing the present value cost of inventory-related cash flows
D)maximizing the gross margin return on inventory investment
E)none of the above

Question 10

The ________________ motive for holding inventory links the level of inventory to ongoing anticipated demand.

A)speculative
B)precautionary
C)transaction
D)just-in-time

Question 11

According to the assumptions upon which the EOQ model is based,total inventory costs _______________ with increases in the number of units ordered in each order.

A)first increases,then decreases
B)first decreases,then increases
C)increases,but at a slowing rate
D)decreases,but at a slowing rate

Question 12

Inventory management is often viewed as the need to keep enough product on hand to avoid stock-outs,however the financial manager is concerned about:

A)having a larger assortment than any of the competitors
B)earning a reasonable rate of return on invested capital
C)ordering the largest quantities possible to maximize quantity discounts
D)maximizing the inventory

Question 13

A company may wish to add a safety stock if it faces uncertain demand.The inventory analyst should modify the following in light of the safety stock:

A)recompute the average inventory by adding the safety stock amount to the present average inventory balance
B)recompute the reorder point by adding the safety stock to the present reorder point
C)recompute EOQ by adding the safety stock to period demand to arrive at a new usage rate
D)both a and b
E)both b and c

Question 14

Torque Manufacturing forecasts that its production will require 500,000 tons of bauxite over its planning period.Demand for Torque's products is stable over time.Ordering costs amount to an average of $20.00 per order.Holding costs are estimated at $1.25per ton of bauxite.EOQ for Torque is

A)2,200 tons
B)6,000,000 tons
C)4,000 tons
D)5.6tons

Question 15

An automobile manufacturer has just decided to outsource windshields instead of making them itself.Using an outside supplier under the just-in-time approach will have what immediate effect on the manufacturer's inventory management?

A)reduce finished goods inventories
B)reduce raw material inventories
C)reduce work in process inventories
D)both a and b
E)both b and c

Question 16

Given the demand for a company's inventoried items,the company typically experiences a trade-off between the ________________ and the _________________.

A)cost of forecasting demand,cost of physically checking inventory levels
B)cost per order,number of orders placed
C)holding cost per unit,order quantity
D)holding costs,ordering costs

Question 17

The manufacturer of bicycles has just implemented a new sales forecasting model which is much more accurate than the "guesstimates" used in the past.The company should consequently

A)reduce finished goods inventories
B)increase finished goods inventories
C)totally eliminate finished goods inventories
D)not change its finished goods inventories

Question 18

The Farmingham Company faces very uncertain demand.A simple way of altering its EOQ-based inventory system to account for the uncertainty is to:

A)a safety stock
B)increase the size of every order
C)slow production whenever sales trends change
D)stock only finished goods inventories

Question 19

The financial manager is trying to minimize the period's total inventory purchase costs.All other things held constant,the existence of quantity discounts on inputs would generally cause the company to order _________ quantity of those inputs,relative to the EOQ quantity.

A)a higher
B)a lower
C)about the same
D)an indeterminate (effect cannot be determined from the information given)

Question 20

Which of the following is NOT one of the primary ways a company can reduce its inventory investment?

A)expand sales
B)forecast sales more accurately
C)find more reliable suppliers
D)eliminate bottlenecks in the production process

Question 21

The number of days inventory held method and the balance fraction method

A)Provide the same conclusion with regard to inventory usage
B)Provide conflicting conclusions with regard to inventory usage
C)Provide the same conclusion with regard to inventory purchases
D)Provide conflicting conclusions with regard to inventory purchases

Question 22

Implementing a supply chain management system necessitates eliminating delays,waste and bottlenecks in

A)the ordering process
B)the production process
C)the storage of finished goods
D)a and b
E)a,b,and c

Question 23

Just-in-time inventory management systems are best suited to companies characterized by each of the following EXCEPT:

A)large size
B)high levels of finished goods inventory
C)stable product demand
D)major market share

Question 24

Supply chain management systems are as:

A)just-in-time inventory management systems
B)distribution
C)logistics
D)'a' and 'b'
E)'b' and 'c'

Question 25

Implementing a just-in-time inventory management system necessitates eliminating delays,waste and bottlenecks in

A)the ordering process
B)the production process
C)the storage of finished goods
D)a and b
E)a,b,and c

Question 26

Which of the following is the order of evolution for resource requirements planning systems?

A)ERP,MRP,MRP I,MRP II
B)MRP I,MRP II,MRP,ERP
C)ERP,MRP I,MRP II,MRP
D)MRP,MRP I,MRP II,ERP