Question 1

Due to unprecedented growth during the year,Flowers by Kelly decided to use some of its surplus cash to increase the size of several inventory order quantities that had been previously determined using an EOQ model.
Required:
Identify whether increasing the size of inventory orders will increase,decrease,or have no effect on each of the following items.
 $$\begin{array} { | l | l | } 
\hline \quad \quad \quad \quad& \text { a. Average inventory } \
\hline & \text { b. Cost of goods sold } \
\hline & \text { c. Number of orders per year } \
\hline & \text { d. Total annual carrying costs } \
\hline & \text { e. Total annual carrying and ordering costs } \
\hline & \text { f. Total annual ordering costs } \
\hline
\end{array}$$ 
a.Average inventory
b.Cost of goods sold
c.Number of orders per year
d.Total annual carrying costs
e.Total annual carrying and ordering costs
f.Total annual ordering costs

Accepted Answer

The answer of Due to unprecedented growth during the year,Flowers...

Question 2

A conflict between the EOQ model's optimal order quantity and the order quantity the purchasing manager,evaluated on conventional accounting numbers,regarded as optimal is considered a(n):

Accepted Answer

This is a problem for the performance evaluation system because it highlights a discrepancy between the optimal order quantity determined by the EOQ model and the order quantity deemed optimal by the purchasing manager based on conventional accounting numbers. This discrepancy needs to be addressed by evaluating and potentially adjusting the performance evaluation system to ensure that it aligns with the company's operational efficiency goals.

Question 3

The economic order quantity (EOQ)model solely guides just-in-time purchasing.
Variant question

Accepted Answer

The economic order quantity (EOQ) model is a calculation used to determine the optimal order size for a given item in order to minimize the total inventory costs. It can be used for various inventory management approaches, not just just-in-time purchasing.

Question 4

If Ballart Collectibles Inc.has a safety stock of 70 units and the average weekly demand is 21 units,how many days can be covered if the shipment from the supplier is delayed?

Accepted Answer

To calculate the number of days that can be covered by the safety stock:
Safety Stock = Average Weekly Demand * Lead Time
Lead Time = Number of days delayed + Number of days for delivery
Let's assume that the delay is for 7 days, then:

Lead Time = 7 + (70/21) = 10.3 days (rounded up to 11 days)
Safety Stock = 21 * 11 = 231 units

Therefore, the company can cover for 23.3 days (231 units / 21 units per week) if the shipment from the supplier is delayed.

Question 5

Taronga Toys sells stuffed wombats.Products Inc.manufactures many different stuffed animals.Taronga Toys orders 10 400 wombats per year,200 per week,at $35 per koala.The manufacturer covers all shipping costs.Taronga Toys earns 10% on its cash investments.The purchase-order lead time is 3 weeks.Taronga Toys sells 185 wombats per week.The following data are available (based on management's estimates):
Variant question
Estimated ordering costs per purchase order $\quad \$ 10$ 
Estimated insurance, materials handling, breakage, 
and so on, per year $\$ 3$ 
Actual ordering costs per order $\$ 15$
Using the estimated amounts above,what is the economic order quantity (EOQ)?

Accepted Answer

The answer of Taronga Toys sells stuffed wombats.Products Inc.manufactures many...

Question 6

If Freemantle Ferry Company has a safety stock of 240 units and the average daily demand is 30 units,how many days can be covered if the shipment from the supplier is delayed by 12 days?

Accepted Answer

To calculate the number of days that the safety stock can cover, we need to divide the total amount of safety stock by the average daily demand:

240 units ÷ 30 units/day = 8 days

Therefore, Freemantle Ferry Company can cover 8 days with their safety stock. If the shipment from the supplier is delayed by 12 days, they will not have enough stock to cover the demand for the entire duration of the delay. Therefore, the company will need to consider ordering more stock or finding an alternative supplier to avoid a stock-out situation.

Option C, which states that the company can cover 8.0 days, is the correct answer.

Question 7

The annual relevant carrying costs of inventory consist of incremental costs plus the opportunity cost of capital.

Accepted Answer

This statement is true as the annual relevant carrying costs of inventory include incremental costs such as storage, handling, and insurance, as well as the opportunity cost of the capital tied up in holding inventory.

Question 8

The CEO of Robotics Limited is concerned because the cost of materials has not been in line with the budget for several periods,even after implementing an EOQ model.The company has the normal direct material variance computations of price and efficiency at the end of each month.The price variance of the direct materials used is usually near expectations.The CEO does not understand how the budget differences are always larger than the material price variances.
Required:
What explanation can you give for the evaluation problems presented?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of The CEO of Robotics Limited is concerned...

Question 9

An inventory item of Kalgoorie Manufacturing has an average daily demand of 30 units with a maximum daily demand of 27 units.The economic order quantity (EOQ)is 250 units.Without safety stocks,the reorder point is 50 units.Safety stocks are set at 112 units.
Required:
a.Determine the reorder point with safety stocks.
b.Determine the maximum inventory level.
c.Determine the average lead time.
d.Determine the maximum lead time.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of An inventory item of Kalgoorie Manufacturing has...

Question 10

Katoomba Horticulture Company has been ordering 150 units of Liquifeed on the recommendation of the salesperson who calls on the company each month.A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity (EOQ)method and its supporting decision elements.She has gathered the following information:
 $$\begin{array} { | l | l | } 
\hline \text { Annual demand in units } & 350 \
\hline \text { Days used per year } & 365 \
\hline \text { Lead time, in days } & 12 \
\hline \text { Ordering costs } & \$ 110 \
\hline \text { Annual unit carrying costs } & \$ 25 \
\hline
\end{array}$$ 
Required:
Determine the EOQ,average inventory,orders per year,average daily demand,reorder point,annual ordering costs and annual carrying costs.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Katoomba Horticulture Company has been ordering 150...

Question 11

Placing smaller purchase orders with suppliers is a principle defining a Just-in-time inventory system: .
Variant question

Accepted Answer

Just-in-time inventory system aims to reduce the inventory carrying costs by ordering smaller amounts more frequently from suppliers, instead of making large purchases all at once. This helps to reduce inventory levels and waste, and also ensures that materials are available exactly when they are needed for production.

Question 12

The ________ describes the flow of goods,services,and information from the initial sources of materials and services to the delivery of products to consumers.

Accepted Answer

The supply chain refers to the entire process of delivering goods, services, and information from the raw materials to the final product delivery to consumers. A customer list is simply a list of customers, which does not encompass the entire process. An ERP is a software system that helps manage various aspects of a business, but it is not necessarily specific to the supply chain. An MRP is a tool for planning and scheduling production based on material requirements, but it is also not synonymous with the entire supply chain process.

Question 13

If Freemantle Engineering Company has a safety stock of 36 units of a particular item and the average monthly demand is 270 units,how many days can be covered if the shipment from the supplier is delayed by 12 days? Assume a 360 day year.

Accepted Answer

The answer of If Freemantle Engineering Company has a safety...

Question 14

Rockhampton Company was in the process of completing the quarterly planning for the purchasing department when a major computer malfunction lost most of his data.For direct material QBJ,he was able to recover the following:
 $$\begin{array} { | l | l | } 
\hline \text { Average inventory level of QBJ } & 400 \
\hline \text { Orders per year } & 30 \
\hline \text { Average daily demand } & 26 \
\hline \text { Working days per year } & 250 \
\hline \text { Annual ordering costs } & \$ 4000 \
\hline \text { Annual carrying costs } & \$ 6000 \
\hline
\end{array}$$ 
Ralph purchases at the EOQ quantity level.
Required:
Determine the annual demand,the cost of placing an order,the annual carrying cost of one unit,and the economic order quantity (EOQ).
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Rockhampton Company was in the process of...

Question 15

Healesville Toys sells stuffed koalas.Products Inc.manufactures many different stuffed animals.Healesville Toys orders 15 600 koalas per year,300 per week,at $25 per koala.The manufacturer covers all shipping costs.Healesville Toys earns 12% on its cash investments.The purchase-order lead time is 3 weeks.Healesville Toys sells 210 koalas per week.The following data are available (based on management's estimates):
Estimated ordering costs per purchase order $\quad \$ 10$
 Estimated insurance, materials handling, breakage,
 and so on, per year $\$ 3$
 Actual ordering costs per order $\$ 15$
What is the economic order quantity (EOQ)using the estimated amounts?

Accepted Answer

Using the formula for Economic Order Quantity (EOQ): 
EOQ = √((2DS)/H)
where,
D = annual demand = 15,600 koalas per year
S = ordering cost per order = $125 (300 koalas * $0.42 per koala)
H = holding cost per unit per year = $3 (12% of $25 per koala)

Plugging in the values:
EOQ = √((2*15,600*125)/3) = 360.96, which rounds up to 361

Therefore, the economic order quantity is 361 stuffed koalas.

Based on the estimates provided by management, the best choice would be to order 360 koalas every 3 weeks to minimize inventory holding costs and ordering costs while ensuring sufficient stock.

Question 16

Gosford Fruit & Vegetables orders most of its items in lot sizes of 15 units.Average annual demand per kilo of kumara is 900 units per year.Ordering costs are $34.15 per order with an average purchasing price of $150.Annual inventory carrying costs are estimated to be 40% of the unit cost.
Required:
a.Determine the economic order quantity (EOQ).
b.Determine the annual cost savings if the shop changes from an order size of 15 units to the economic order quantity (EOQ).
c.Since the shelf life is limited,the Gosford Fruit & Vegetables must keep the inventory moving.Assuming a 360-day year,determine the optimal lot size under each of the following: (1)a 20-day shelf life and (2)a 10-day shelf life.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Gosford Fruit & Vegetables orders most of...

Question 17

As it pertains to purchase orders,what are requirements of just-in-time systems?
Variant question

Accepted Answer

Just-in-time systems require smaller and more frequent purchase orders to ensure that inventory is received exactly when it is needed in the manufacturing process. This helps to reduce excess inventory and storage costs, and allows for more flexibility in responding to changes in demand.

Question 18

The return foregone by investing capital in inventory rather than elsewhere is referred to as the relevant opportunity cost of capital in relation to inventory.
Variant question

Accepted Answer

The statement correctly defines the relevant opportunity cost of capital in relation to inventory.

Question 19

Which essential costs should be considered when developing inventory-related relevant costs for use in an economic order quantity (EOQ)model? Why?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Which essential costs should be considered when...

Question 20

Redfern Butchery orders most of its items in lot sizes of 10 units.Average annual demand per side of venison is 720 units per year.Ordering costs are $32.50 per order with an average purchasing price of $130.Annual inventory carrying costs are estimated to be 40% of the unit cost.
Required:
a.Determine the economic order quantity (EOQ).
b.Determine the annual cost savings if the shop changes from an order size of 10 units to the economic order quantity (EOQ).
c.Since the shelf life is limited,the Redfern Butchery must keep the inventory moving.Assuming a 360-day year,determine the optimal lot size under each of the following: (1)a 20-day shelf life and (2)a 10-day shelf life.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Redfern Butchery orders most of its items...

Quiz 17: Inventory Management, Just-In-Time and Simplified Costing Methods

A conflict between the EOQ model's optimal order quantity and the order quantity the purchasing manager,evaluated on conventional accounting numbers,regarded as optimal is considered a(n) :

The economic order quantity (EOQ)model solely guides just-in-time purchasing. Variant question

If Ballart Collectibles Inc.has a safety stock of 70 units and the average weekly demand is 21 units,how many days can be covered if the shipment from the supplier is delayed?

If Freemantle Ferry Company has a safety stock of 240 units and the average daily demand is 30 units,how many days can be covered if the shipment from the supplier is delayed by 12 days?

The annual relevant carrying costs of inventory consist of incremental costs plus the opportunity cost of capital.

Placing smaller purchase orders with suppliers is a principle defining a Just-in-time inventory system: . Variant question

The ________ describes the flow of goods,services,and information from the initial sources of materials and services to the delivery of products to consumers.

If Freemantle Engineering Company has a safety stock of 36 units of a particular item and the average monthly demand is 270 units,how many days can be covered if the shipment from the supplier is delayed by 12 days? Assume a 360 day year.

As it pertains to purchase orders,what are requirements of just-in-time systems? Variant question

The return foregone by investing capital in inventory rather than elsewhere is referred to as the relevant opportunity cost of capital in relation to inventory. Variant question

Which essential costs should be considered when developing inventory-related relevant costs for use in an economic order quantity (EOQ)model? Why? _ _