Exam 9: Inventory Fundamentals

Lower inventories can be achieved by ordering smaller quantities more often, but this practice results in higher annual ordering costs. This defines:

Items that demand the simplest possible controls to make sure there are plenty in stock are___________ items.

In broad terms, customer service is the ability of a company to satisfy the needs of customer.

Revenue are the costs incurred to make the product.

Most companies carry a large number of items in stock.

A company carries an average annual inventory of $2,000,000. If it estimates the cost of capital is 10%, storage costs are 7%, and risk costs are 6%, what does it cost per year to carry this inventory?

Identify the various rules for inventory management. Why are these rules important?

The ABC principle is based on___________ law.

About 50% of the items account for about 5% of the dollar usage is a good description of ____________ inventory items.

What should the objectives be of a firm wishing to maximize profit?

Item cost is the price paid for a purchased item, which consists of the cost of the item and any other indirect costs associated with getting the item into the plant.

___________is the amount of money the owners have invested in the company.

What are anticipation inventories and why are they used?

Given the following annual costs, calculate the average cost of placing one order: production control salaries = $60,000, supplies and operating expenses for production control = $15,000, cost of setting up work centers for an order = $120, and there are 2,000 orders placed each year.

Discuss the theory behind cash flow analysis.

Analyze the following data to produce an ABC classification based on annual dollar usage: part number annual unit usage unit cost $ annual $ usage ABC Classification 1 200 10 2 15,000 4 3 60,000 6 4 15,000 15 5 1,400 10 6 100 50 7 25,000 2 8 700 3 9 25,000 1 10 7,500 1

Capacity- associated costs can be avoided by leveling production, that is, by producing items in peak periods for sale in slack periods.

FIFO assumes the newest last) item in stock is the first sold.

A items demand normal controls with good records, regular attention, and normal processing.

Carrying costs include all expenses incurred by the firm because of the volume of inventory carried.