XAppendixIII - Inventory Management

MULTIPLE CHOICE QUESTIONS

1. Inventory Inventory holding holding costs costs typical typically ly include: include: A. clerical clerical costs costs of purchas purchase-ord e-order er preparat preparation. ion. B. costs costs of deteriora deterioration tion,, theft, theft, or or spoilag spoilage. e. C. costs costs associat associated ed with with lost lost sales sales to custom customers. ers. D. forgone forgone interes interestt on money money tied up up in invento inventory ry.. . item itemss !B! !B! And And !D! !D! a"o a"ove ve.. Answer:  #$: 1 %ype: %ype: &C '. Inventory Inventory holding holding costs costs would would typical typically ly include include all of the the following following e(cept: e(cept: A. ins insuranc rancee. B. theft. C. tran transp spor orta tati tion on.. D. o"so o"sole lesc scen ence ce.. . ware wareho hous usee rent rent.. Answer: C #$: 1 %ype: %ype: &C ). At A. B. C. D. .

the the econ economi omicc order order *uant *uantity ity:: total total annual invento inventory ry costs, costs, holding holding costs, costs, and ordering ordering costs are are all minimi+ed. minimi+ed. total total annual annual inventory inventory costs costs and and holding holding costs costs are minimi minimi+ed. +ed. total total annual invento inventory ry costs are minimi minimi+ed, +ed, and holding holding costs costs e*ual ordering ordering costs. costs. total total annual invento inventory ry costs are minimi minimi+ed, +ed, and holding holding costs costs e(ceed ordering ordering costs. costs. total total annual invento inventory ry costs are minimi minimi+ed, +ed, and ordering ordering costs costs e(ceed e(ceed holding holding costs. costs.

Answer: C #$: 1 %ype: %ype:  . Chan uses uses an economic economic order order *uantity *uantity model model and has determ determined ined an optimal optimal order order si+e si+e of // units. Annual demand demand is 10,/// units, ordering costs are 12 per order, and holding holding costs are 1.2/ per unit. Chan3s annual ordering and holding costs costs total: A. 4//. B. 1,)2/. C. 4,4//. D. '5,2/. . some some othe otherr am amount ount.. Answer: A #$: 1 %ype: %ype: A

88

Hilton, Managerial Accounting, Seventh Edition

6se the following to answer *uestions 2-: Cartwright 7raphics uses a special purpose paper in 0/8 of its 9o"s. %he paper is purchased in 1//sheet pacages at a cost of 1// per pacage. ;anagement estimates that the cost of placing and receiving a typical order is 12, and the annual cost of carrying a pacage in inventory is 1.2/. Cartwright uses ',// pacages each year. produces a '5/ savings for the firm 05/ - //. D. %he $> model assumes that some inventory is necessary for "usiness operations, and the goal is to optimi+e the order *uantity to produce a situation where ordering costs e*ual holding costs. In contrast, under ?I%, holding inventory in a warehouse is deemed to "e inefficient and wasteful. %hus, inventory should "e minimi+ed and even eliminated, if  possi"le. Inventory under a ?I% system is typically lower and, thus, holding costs are lower with this approach.

 Appendix III

90