Question 1

In the EOQ model, if carrying costs increase while all other costs remain unchanged, the number of orders placed would be expected to increase.

Accepted Answer

In the EOQ model, as carrying costs increase, the total cost of holding inventory increases. This means that it becomes more expensive to keep inventory on hand for longer periods, and thus it becomes economically efficient to place smaller and more frequent order quantities. Therefore, the number of orders placed would be expected to increase with an increase in carrying costs.

Question 2

A computerized inventory system that simulates needed materials requirements for the finished product, and then compares production needs to available inventory balances to determine when orders should be placed is the

Accepted Answer

The system described in the question is a materials requirement planning (MRP) system, which is a computerized inventory management system that calculates the materials needed to produce a finished product and then compares those material requirements to the inventory on hand to determine when orders should be placed. The economic order quantity system (A) is a separate inventory management technique that calculates the optimal order quantity to minimize carrying costs and ordering costs. The just-in-time system (C) is a lean manufacturing system that emphasizes minimizing inventory and waste by ordering materials and producing finished goods just in time for delivery. The red-line method (D) is not a recognized inventory management system.

Question 3

A popular extension of materials requirement planning is manufacturing resource planning II, which integrates data from numerous areas such as finance, accounting, marketing, engineering, and manufacturing using a sophisticated computer system.

Accepted Answer

Manufacturing resource planning II does indeed integrate data from numerous areas using a sophisticated computer system.

Question 4

In the ABC system of inventory management, the ________ method or system is appropriate for monitoring B items.

Accepted Answer

The basic economic order quantity (EOQ) method is appropriate for B items in the ABC system, as it balances ordering and holding costs, making it suitable for items that are of moderate value and demand.

Question 5

Because managing inventory is just like managing any other investment, decisions about the level of inventory should be guided by the effect of inventory levels on sales.

Accepted Answer

Inventory management involves considering costs associated with holding inventory, potential stockouts, and the need for efficient operations, not just the effect of inventory levels on sales.

Question 6

The ________ inventory consists of items that have been produced but not yet sold.

Accepted Answer

Finished goods inventory consists of items that have been produced but not yet sold. Raw materials inventory refers to materials that have not been processed, and work-in-process inventory refers to items that are in the process of being produced. Capital goods inventory refers to long-term fixed assets such as machinery and equipment.

Question 7

In the ABC system of inventory management, the ________ method or system could be utilized to control C items.

Accepted Answer

The red-line method is used to control C items, which are the low-value items with low consumption frequency. In this method, a red line is drawn on the inventory card to indicate the reorder point. When the inventory level reaches the red line, it triggers the need to reorder the item. The basic economic order quantity method is used for controlling A items, while materials requirement planning and just-in-time are used for controlling B and few A items.

Question 8

Inventory insurance costs are an example of ________ costs.

Accepted Answer

Inventory insurance is an expense associated with carrying inventory, such as storage, handling, and insurance costs. Carrying costs are the expenses of holding inventory, including warehousing, insurance, and finance costs. Therefore, inventory insurance costs are an example of carrying costs. The other options (order, marginal, and total costs) do not specifically relate to the expenses associated with holding inventory.

Question 9

Since its objective is to minimize inventory investment, a Just-in-Time (JIT) system uses no, or very little, safety stocks.

Accepted Answer

A key principle of JIT is to eliminate waste, including excess inventory. Therefore, a JIT system aims to have just enough inventory to meet demand, and as such, safety stocks are not used or used in very limited quantities.

Question 10

All of the following managers would like to have large inventories EXCEPT the ________ manager.

Accepted Answer

The financial manager would not want a large inventory as it ties up cash flow and increases storage and insurance costs. The other managers (marketing, manufacturing, and purchasing) may need larger inventories for various reasons such as meeting customer demand, ensuring smooth production, or taking advantage of bulk purchasing discounts.

Question 11

The ________ is a technique that divides inventory into three groups, according to dollar investment.

Accepted Answer

The ABC system is a technique that divides inventory into three groups (A, B, and C) based on their dollar investment. Group A typically represents high-value items with a lower frequency of demand, while Group C items represent low-value items with higher demand frequency. This allows companies to prioritize their inventory management efforts and allocate resources accordingly. The other options (exponential smoothing, EOQ model, and LIFO model) are not related to inventory classification based on dollar investment.

Question 12

The reorder point is an inventory management system that compares production needs to available inventory balances and determines when orders should be placed for various items on the firm's bill of materials.

Accepted Answer

The answer of The reorder point is an inventory management...

Question 13

The ________ inventory contains the basic components of the production process.

Accepted Answer

Raw materials are the basic components of the production process, including any materials or substances used in the manufacturing of a final product. Work-in-process inventory includes items that are in the process of being manufactured, while finished goods inventory contains completed items that are ready for sale or distribution. Capital goods are items used in the production process, such as machinery or equipment, but are not considered part of inventory.

Question 14

The costs associated with inventory can be divided into the following groups EXCEPT

Accepted Answer

The costs associated with inventory can be broadly divided into three groups: order costs, carrying costs, and total costs. Marginal costs do not represent a separate group of inventory costs. Instead, they are the additional costs incurred when producing or acquiring one additional unit of inventory.

Question 15

The philosophy of the ________ is that the firm would have only work-in-process inventory.

Accepted Answer

The philosophy of the just-in-time system is to minimize inventory levels and have only work-in-process inventory. This system focuses on producing goods as they are demanded, rather than producing excess inventory. The basic economic order quantity system and materials requirement planning system both involve maintaining inventory levels, and the red-line method is not a commonly used inventory management system.

Question 16

In the EOQ model, the total cost is minimized at the point where the order costs and carrying costs are equal.

Accepted Answer

This is one of the fundamental assumptions of the EOQ model. The formula for calculating the optimal order quantity takes into account both the ordering costs and the carrying costs, and the result represents the point where the total cost is minimized.

Question 17

The three basic types of inventory are all of the following EXCEPT

Accepted Answer

The three basic types of inventory are raw materials, work-in-process, and finished goods. Capital goods are not considered inventory as they are assets used in the production process rather than goods intended for sale.

Question 18

A popular extension of materials requirement planning is inventory integration automation II, which integrates data from numerous areas such as finance, accounting, marketing, engineering, and manufacturing using a sophisticated computer system.

Accepted Answer

The correct term for the extension of materials requirement planning that integrates data from various areas using a sophisticated computer system is Enterprise Resource Planning (ERP), not Inventory Integration Automation II.

Question 19

The ________ is an inventory technique that takes into account various operating and financial costs to determine the order quantity for a specific inventory item.

Accepted Answer

The EOQ (Economic Order Quantity) model is a well-known inventory management technique that takes into account various carrying and ordering costs to calculate the ideal order quantity for a particular inventory item. It considers the optimal trade-off between ordering too frequently (incurring high ordering costs) and ordering too infrequently (incurring high carrying costs). The other options listed (A, B, and D) are not relevant to this inventory management technique.

Question 20

The ________ inventory consists of all items currently in the production process.

Accepted Answer

Work-in-process inventory refers to items that are currently undergoing production processes and have not yet been completed. Raw materials refer to the materials used in the production process, finished goods refer to items that have been completed and are ready for sale, and capital goods refer to long-term assets used in the production process such as machinery or equipment.

Quiz 15: Working Capital and Current Assets Management