Question 1

Freight in charges forms part of purchasing costs of inventory.

Accepted Answer

Freight in charges are the costs incurred for transportation and delivery of inventory purchased. As it is a cost incurred during the purchase of inventory, it forms a part of the purchasing costs of inventory. Therefore, the statement is true.

Question 2

Which of the following statements is true of costs associated with goods for sale?

Accepted Answer

While financial accounting systems may track some of the inventory costs such as purchase costs and carrying costs, it may not include other indirect costs associated with inventory management such as ordering costs or obsolescence costs.

Question 3

All inventory costs are available in financial accounting systems.

Accepted Answer

Opportunity costs are rarely recorded in formal accounting systems and they are often a very significant cost component.

Question 4

Most firms try not to hold more inventory than necessary because shrinkage costs generally decrease when a firm's inventory increases.

Accepted Answer

Shrinkage costs actually increase as a firm's inventory increases because there are more items to potentially lose or misplace. Therefore, most firms try to hold just enough inventory to meet demand without accumulating excess.

Question 5

The opportunity cost of the stockout includes lost contribution margin on the sale not made plus any contribution margin lost on future sales due to customer ill will.

Accepted Answer

The opportunity cost of a stockout includes both the immediate loss of contribution margin on the sale not made and the potential loss of contribution margin on future sales due to customer dissatisfaction or lost trust. This is because a customer who experiences a stockout may choose to take future business elsewhere, resulting in a long-term impact on the company's revenue and profitability.

Question 6

Which of the following is the correct mathematical expression to calculate annual relevant ordering costs?

Accepted Answer

The annual relevant ordering costs can be calculated by dividing the demand in units for a specified period by the size of each order, and then multiplying it by the relevant ordering cost per purchase order. Therefore, the correct mathematical expression is (Demand in units for a specified period / Size of each order) × Relevant ordering cost per purchase order, which is choice C.

Question 7

Among different types of costs associated with inventory,the costs that result when features and characteristics of a product or service are not in conformance with the customer specifications are ________.

Accepted Answer

Costs of quality refer to the costs associated with ensuring that a product or service meets customer specifications and requirements. This includes the cost of preventing defects, inspecting products, conducting quality assurance, and addressing any quality issues that arise. Non-conformance costs are a type of cost of quality that result from products or services not meeting customer specifications, such as customer returns or warranty claims. EOQ estimation costs, purchasing costs, and shrinkage costs are other types of inventory costs that are not related to quality.

Question 8

Which of the following statements is true of the the economic order quantity decision model?

Accepted Answer

The economic order quantity decision model assumes that the larger the order quantity, the lower the annual relevant ordering costs but the higher the annual relevant carrying costs. This is because ordering costs decrease as the number of orders decreases, while carrying costs increase as the average inventory level increases. Option A is incorrect because the economic order quantity decreases with higher carrying costs, not increases. Option B is incorrect because there are other factors considered in the model such as unit cost of inventory and discount rates. Option C is incorrect because the model assumes the purchase order lead time is known with certainty.

Question 9

Shrinkage is measured by adding (a)the cost of the inventory recorded on the books in the absence of theft and other incidents just mentioned,and (b)the cost of inventory when physically counted.

Accepted Answer

Shrinkage is measured by subtracting the cost of inventory physically counted from the cost of inventory recorded on the books.

Question 10

Purchasing costs arise in preparing and issuing purchase orders,receiving and inspecting the items included in the orders,and matching invoices received,purchase orders,and delivery records to make payments.

Accepted Answer

Ordering costs arise in preparing and issuing purchase orders, receiving and inspecting the items included in the orders, and matching invoices received, purchase orders, and delivery records to make payments.

Question 11

Inventory management is the planning,organizing,and controlling activities that focus on the flow of materials into,through,and out of the organization.

Accepted Answer

Inventory management is indeed the process of planning, organizing, and controlling the inflow, outflow, and movement of materials in an organization to ensure optimal utilization of resources and timely delivery of products or services to customers.

Question 12

Among different types of costs associated with inventory,the opportunity cost of the investment tied up in inventory is a(n)________.

Accepted Answer

Carrying cost is the cost associated with holding inventory such as storage, handling, insurance, and the opportunity cost of capital tied up in inventory. Purchasing cost is the cost associated with acquiring inventory, ordering cost is the cost of placing and receiving orders, and stockout cost is the cost that results from running out of inventory. While all of these costs are important to consider when managing inventory, the opportunity cost of capital tied up in inventory falls specifically under the category of carrying cost.

Question 13

Managing inventories to increase net income requires companies to effectively manage costs associated with goods for sale.
Required:
Classify the below listed items as either Purchasing Costs,Ordering Costs,Carrying Costs,Stockout Costs,Costs of Quality,or Shrinkage Costs.
 ___a. costs of obtaining purchase approvals
___b. costs resulting from embezzlement by employees
___c. internal failure costs
___d. opportunity cost of the investment tied up in inventory
___e. costs associated with storage
___f. costs of lost sales as a result of not having an item requested by a customer
___g. freight-in charges
___h. special processing costs
___i. costs of wages for work-int-process inspections
___j. costs that result from misclassifications and clerical errors

Accepted Answer

The answer of Managing inventories to increase net income requires...

Question 14

Among different types of costs associated with inventory,the incoming freight charges of inventories are ________.

Accepted Answer

Incoming freight charges are a part of purchasing costs, which are one of the types of costs associated with inventory. Ordering costs refer to the costs associated with placing an order, while stockout costs refer to the costs associated with running out of inventory. Carrying costs refer to the costs associated with holding inventory over a period of time.

Question 15

Among different types of costs associated with inventory,the costs of obtaining purchase approvals are ________.

Accepted Answer

The costs of obtaining purchase approvals are considered ordering costs, as they are associated with the process of placing orders for inventory. Purchasing costs are related to the actual cost of goods being purchased, stockout costs are associated with potential revenue loss due to running out of stock, and carrying costs refer to costs associated with storing inventory. None of these categories include the costs of obtaining purchase approvals.

Question 16

The costs that result when a company runs out of a particular item for which there is a customer demand are ________.

Accepted Answer

The costs that result when a company runs out of a particular item for which there is a customer demand are known as stockout costs. These costs can include lost sales, decreased customer loyalty, and the need for expedited shipping or production to meet demand, all of which can be expensive for the company. Shrinkage costs refer to losses due to theft, damage, or spoilage. Shortage costs are a general term for any costs resulting from a shortage, but they do not specifically refer to the costs of a stockout. EOQ estimation costs refer to the costs associated with calculating the economic order quantity, which is the optimal order quantity that minimizes total inventory costs.

Question 17

Stockout costs arise when an organization experiences an ability to deliver its goods to its customers.

Accepted Answer

Stockout costs are costs that arise when a company runs out of a particular item for which there is customer demand.

Question 18

Among different types of costs associated with inventory,four categories of quality costs are ________.

Accepted Answer

The four categories of quality costs associated with inventory are prevention costs, appraisal costs, internal failure costs, and external failure costs. Choice A is incorrect because control costs are not a category of quality costs. Choice B is incorrect because it leaves out appraisal costs. Choice D is incorrect because control costs are not a category of quality costs.

Question 19

The costs that result from theft of inventory are ________.

Accepted Answer

Shrinkage costs refer to the loss of inventory due to theft, damage, or other factors that cannot be accounted for. Therefore, the costs resulting from theft of inventory are shrinkage costs.

Question 20

Which of the following statements is true of costs associated with goods for sale?

Accepted Answer

The costs of receiving and inspecting the items included in purchase orders are known as ordering costs. Option A is incorrect as it mentions that information-gathering technology increases inventory costs, which is not true. Option B is incorrect as opportunity costs are recorded in financial accounting systems but not in a separate category. Option D is also incorrect as it mentions that opportunity costs are not a significant component in several cost categories which is not true.

Quiz 20: Inventory Management, just-In-Time, and Simplified Costing Methods

Freight in charges forms part of purchasing costs of inventory.

Which of the following statements is true of costs associated with goods for sale?

All inventory costs are available in financial accounting systems.

Most firms try not to hold more inventory than necessary because shrinkage costs generally decrease when a firm's inventory increases.

The opportunity cost of the stockout includes lost contribution margin on the sale not made plus any contribution margin lost on future sales due to customer ill will.

Which of the following is the correct mathematical expression to calculate annual relevant ordering costs?

Among different types of costs associated with inventory,the costs that result when features and characteristics of a product or service are not in conformance with the customer specifications are ________.

Which of the following statements is true of the the economic order quantity decision model?

Shrinkage is measured by adding (a)the cost of the inventory recorded on the books in the absence of theft and other incidents just mentioned,and (b)the cost of inventory when physically counted.

Purchasing costs arise in preparing and issuing purchase orders,receiving and inspecting the items included in the orders,and matching invoices received,purchase orders,and delivery records to make payments.

Inventory management is the planning,organizing,and controlling activities that focus on the flow of materials into,through,and out of the organization.

Among different types of costs associated with inventory,the opportunity cost of the investment tied up in inventory is a(n) ________.

Among different types of costs associated with inventory,the incoming freight charges of inventories are ________.

Among different types of costs associated with inventory,the costs of obtaining purchase approvals are ________.

The costs that result when a company runs out of a particular item for which there is a customer demand are ________.

Stockout costs arise when an organization experiences an ability to deliver its goods to its customers.

Among different types of costs associated with inventory,four categories of quality costs are ________.

The costs that result from theft of inventory are ________.

Which of the following statements is true of costs associated with goods for sale?