Question 1

__________ refers to inventory that has been purchased but is not fit for sale due to damage or deterioration.

Accepted Answer

Spoilage refers to inventory that has been purchased but is not fit for sale due to damage or deterioration. Obsolescence refers to inventory that is outdated or no longer in demand. Theft refers to inventory that has been stolen. Abuse is not a term commonly used in inventory management.

Question 2

If __________ were the only inventory expense, a business would want to order as few items at a time as possible.

Accepted Answer

Holding costs are the expenses associated with storing inventory, such as rent, utilities, and insurance. If holding costs were the only inventory expense, a business would want to order as few items at a time as possible to reduce the amount of inventory that needs to be stored and the associated holding costs.

Question 3

__________ becomes a problem for businesses in which styles, tastes, or technologies change quickly.

Accepted Answer

Obsolescence refers to the process of becoming outdated or no longer useful due to changes in styles, tastes, or technologies. This can pose a problem for businesses that rely on staying current and offering the latest products or services, as they may need to constantly update their offerings to remain competitive. Shrinkage refers to loss of inventory through theft, damage, or other factors. Holding costs refer to the expenses associated with storing inventory, such as rent and utilities. Financing refers to obtaining funding or capital for the business. While holding costs and financing may also be challenges for businesses, they are not directly related to changes in styles, tastes, or technologies.

Question 4

The amount of an item that needs to be ordered is known as which of the following?

Accepted Answer

The reorder quantity refers to the amount of an item that needs to be ordered to replenish inventory stock.

Question 5

__________ begins with determining when inventory restocking is needed and how much inventory should be ordered.

Accepted Answer

Controlling inventory involves determining when inventory restocking is needed and how much inventory should be ordered. This helps to ensure that inventory levels are maintained at an optimal level, preventing stockouts or overstocking.

Question 6

The time when a business needs to restock inventory is known as the ____________.

Accepted Answer

The time when a business needs to restock inventory is known as the reorder point. This is the level of inventory at which a new order needs to be placed to avoid stockouts. Reorder quantity refers to the amount of inventory to be reordered, inventory cycle refers to the time it takes to go through a complete inventory cycle, and lead time refers to the time it takes for a supplier to deliver the inventory after an order has been placed. None of these accurately describe the time when a business needs to restock inventory.

Question 7

Maintaining a balance between _________ and ___________ is part of the difficult job of controlling inventory.

Accepted Answer

Ordering costs are the costs associated with placing orders for inventory, such as labor and paperwork costs. Holding costs are the costs associated with storing and maintaining inventory, such as rent and insurance costs. Maintaining a balance between these two costs is crucial in controlling inventory, as ordering too frequently will increase ordering costs while holding inventory for too long will increase holding costs. Choice A is therefore the best answer as it correctly identifies these two key factors in inventory management. Storage costs (Choice B) are a subset of holding costs, and inventory costs (Choice C) are a more general term that can refer to both ordering and holding costs. Shrinkage costs and spoilage costs (Choice D) are also important considerations in inventory management, but they are not directly related to finding a balance between ordering and holding costs.

Question 8

If __________ were the only inventory expense, a business would want to order as many items at a time as possible.

Accepted Answer

The answer of If __________ were the only inventory expense,...

Question 9

A shoe business meets the qualifications for using the economic order quantity (EOQ) model. The business sells 20,000 pairs of shoes per year. Ordering costs for supplies are $12 per order. Holding costs are $0.96 per pair of shoes per year. What is the EOQ for this business?

Accepted Answer

EOQ formula = √((2DS)/H)

Where:
D = Annual demand (in units)
S = Ordering cost per order
H = Holding cost per unit per year

Plugging in the values given in the problem statement:

EOQ = √((2 x 20,000 x 12)/0.96) = √500,000 = 707.11 (rounded to 708)

Therefore, the best choice for EOQ is B.

Question 10

The period of time that begins when an item is at its highest desired stocking level, continues as the item is used or sold, and ends when the item is replenished is known as

Accepted Answer

The period of time described in the question is the inventory cycle, which is the time it takes for an item to go from its highest desired stocking level to being replenished. Dead time refers to the period of time when there is no activity happening, such as downtime in production. Lead time refers to the time it takes for an order to be fulfilled or for materials to be delivered. Shelf life refers to the length of time a product can be stored before it becomes unusable.

Question 11

Sally owns and operates an in-home daycare business, where she is the only employee. She provides all meals and snacks to the kids that she takes care of. What type of food inventory control method should she adopt?

Accepted Answer

Sally should adopt a visual control method. This involves physically checking the inventory on a regular basis and restocking as needed. Given the small size of her business and the fact that she is the only employee, this method is simple and effective for her needs. The other methods listed are more appropriate for larger businesses with more complex inventory control needs.

Question 12

Ordering costs tend to be _________ costs.

Accepted Answer

Ordering costs are fixed costs, as they do not vary with the number of orders placed but remain constant regardless of the quantity ordered. Examples of ordering costs include administrative and clerical expenses associated with placing and processing purchase orders, as well as the cost of transporting and inspecting goods upon delivery.

Question 13

_________ is a traditional method of inventory control that minimizes total inventory costs by balancing annual ordering costs and annual holding costs for an item.

Accepted Answer

Economic order quantity (EOQ) is a traditional method of inventory control that minimizes total inventory costs by balancing annual ordering costs and annual holding costs for an item. It calculates the optimal order quantity that minimizes the total cost of ordering and holding inventory. The formula takes into account cost of placing an order, annual demand for the item, cost of holding one unit of inventory for one year, and any discounts or promotions offered by the supplier.

Question 14

The period of time from order placement until goods are received is known as which of the following?

Accepted Answer

Lead time refers to the time period between order placement and receipt of goods. Dead time and inventory cycle are not relevant to this context, and while order time might be a term used in some cases, lead time is a more commonly used term.

Question 15

The basic economic order quantity model assumes all but which of the following?

Accepted Answer

The basic economic order quantity model assumes that the average inventory level is equal to maximum inventory level minus minimum inventory level divided by two. Therefore, option D is incorrect. Options A and B are assumptions made in the model, and option C is a formula used to calculate average inventory level.

Question 16

A small businesses owner that sells little red wagons meets the qualifications outlined in the economic order quantity (EOQ) model. His store sells 800 little red wagons per year. When he orders little red wagons from his supplier, his ordering costs amount to $15. The little red wagons cost the owner $1.00 per wagon per year to hold in inventory. What is the owner's EOQ, and how many times per year should he order little red wagons from his supplier?

Accepted Answer

The answer of A small businesses owner that sells little...

Question 17

Benjamin Wilson is the Distribution Manager of a small coffee company. He has found that about four percent of total inventory is lost due to product theft or spoilage. This is referred to as inventory

Accepted Answer

Shrinkage refers to the loss of inventory due to theft or spoilage. Obsolescence refers to inventory that becomes outdated or unpopular, dismissal refers to terminating an employee, and deadstock refers to inventory that is no longer sellable or usable.

Question 18

Inventory represents about ____ percent of a manufacturing firm's capital.

Accepted Answer

The typical percentage of inventory as a portion of a manufacturing firm's capital is around 25%. This percentage can vary depending on the industry, but in general, inventory is a significant portion of a company's assets.

Question 19

Small businesses with a narrow selection of items can get by with a/an __________ method of inventory control.

Accepted Answer

Visual control is a method of inventory control where items are monitored through visual inspection. This method is practical for small businesses with a narrow selection of items as they can easily keep track of their inventory levels by visually looking at their stock.

Question 20

A widget store sells 12,000 widgets per year and meets the qualifications outlined in the economic order quantity (EOQ) model. Ordering costs for widgets are $14 per order and holding costs are $0.50 per widget per year. How many orders per year should this business make?

Accepted Answer

The answer of A widget store sells 12,000 widgets per...

Quiz 12: Small Business Marketing: Product