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Exam 19: Inventory Cost Management Strategies

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Question 1

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The simplest version of the economic order quantity decision model assumes all of the following EXCEPT

A) the same fixed quantity is ordered at each reorder point.
B) demand ordering costs and carrying costs are certain.
C) purchase order lead time is certain.
D) no stockouts occur.
E) purchasing costs per unit depend on the quantity ordered.

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Question 2

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Answer the following question(s) using the information below: Garry's Golf Supplies is a local retail outlet which sells golf balls.Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball;the golf balls are shipped in cartons of 72,FOB destination.Annual demand is 172,800 golf balls at a rate of 3,322 balls per week.Garry's Golf Supplies earns 12% on its cash investments.The purchase order lead time is one week.The following cost data are available: -Purchasing at the EOQ recommended level,how many deliveries will be made to Garry's Golf Supplies during each time period?

A) 2 deliveries
B) 6 deliveries
C) 9 deliveries
D) 12 deliveries
E) 3 deliveries

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Question 3

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Expediting costs of a stockout include the additional ordering costs,plus any associated transportation costs.

Answer the following question(s) using the information below: The following information has been gathered for Product A: -What is the reorder point for Product A?

Backflush costing does not strictly adhere to generally accepted accounting principles.Explain why.Also,describe the types of businesses that might use backflush costing.

Disc Company sells 400 discs per week.Purchase order lead time is 3 weeks and the economic order quantity is 900 units.What is the reorder point?

What are the principles of lean accounting? Are there any limitations? Discuss.

Cyclone Electronics manufactures automobile radios.All processing is initiated when an order is received.For March there were no beginning inventories.Conversion costs and direct materials are the only manufacturing cost accounts.Direct materials are purchased under a just-in-time system and there was no variance.Backflush costing is used with trigger points at completion of finished goods and sale of product.Additional information for the month is as follows: Required: Record all journal entries for the monthly activities related to the above transactions based on backflush costing.

Just-in-Time (JIT)Production is a system in which each component on a production line is produced immediately as needed by the next step in the production line.

The economic order quantity decision model aids in the calculation of the optimal quantity of inventory to order.

Falcon Industries manufactures customized industrial compounds.All processing is initiated when an order is received.For April there were no beginning inventories.Conversion costs and direct materials are the only manufacturing cost accounts.Direct materials are purchased under a just-in-time system.Journal entries are recorded at three trigger points using backflush costing: purchase of direct materials,completion of finished goods,and sale of product.Additional information is as follows: Required: Record all journal entries for the monthly activities related to the above transactions assuming that backflush costing is used.The company uses a standard costing system for recording the purchase and use of direct materials;and,the recording of conversion costs.Material price variances are recorded at the time of purchase then closed to cost of goods sold;all other variances are recorded at the completion of finished goods trigger point as a direct charge,or credit to Cost of Goods Sold.

The possibility of a conflict between the order quantity that an EOQ model recommends and the order quantity that the purchasing manager regards as optimal is increased with

The management accountant must design performance measures to evaluate and control JIT production.One of the dominant sources of information that the management accountant might use for this would be the personal observations of production line workers and team leaders.Another dominant source of information would be

Dolls "R" Us manufactures children's plastic dolls.For January there were no beginning inventories of direct materials,and no beginning or ending work-in-process.Conversion costs and direct materials are the only manufacturing cost accounts.Journal entries are recorded at three trigger points using backflush costing: purchase of direct materials,completion of finished goods,and sale of product.Since February is the first month of the fiscal year,all actual costs are as budgeted.Additional information for the month is as follows: Required: Record all journal entries for the monthly activities related to the above transactions based on backflush costing.

If annual carrying costs are excluded when evaluating the performance of managers,the managers may favour purchasing in larger order quantities.

Companies can achieve significant gains by sharing information and coordinating activities throughout the supply chain.

Use the information below to answer the following question(s) . Fun 'N' Games manufactures various board games.For January there were no beginning inventories of direct materials,and no beginning or ending work-in-process.Only one indirect manufacturing cost category is currently in use,"Conversion Costs." Journal entries are recorded when materials are purchased and when conversion costs are allocated under backflush costing. -Which of the following journal entries properly records the purchase of direct materials at Fun 'N' Games?

Costs associated with holding inventories and the resulting opportunity cost of the investment tied up in inventory fall into which of the following categories?

When there is an inconsistency between the decision model and the model used to evaluate the performance of the person implementing the model,________ arise.

Companies that have fast manufacturing lead times usually find that a version of backflush costing will report cost numbers similar to what a sequential costing approach would report.