Exam 20: Inventory Management, Just-in-Time, and Simplified Costing Methods

The following information applies to Krynton Corp. which supplies microscopes to laboratories throughout the country. Krynton purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation. What is the economic order quantity assuming each order was made at the economic-order-quantity amount?

Which of the following statements best defines an enterprise resource planning (ERP) system?

Short Grass Incorporated is a distributor of golf balls. Martin's Golf Supplies is a local retail outlet which sells golf balls. Martin's purchases the golf balls from Short Grass Incorporated at $1.15 per ball; the golf balls are shipped in cartons of 52. Short Grass Incorporated pays all incoming freight, and Martin's Golf Supplies does not inspect the balls due to Short Grass' reputation for high quality. Annual demand is 157,520 golf balls at a rate of 3291 balls per week. Martin'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 during each time period? (Round costs to the nearest cent and quantities to the nearest whole number.)

The IBP Grocery orders most of its items in lot sizes of 10 units. Average annual demand per side of beef is 720 units per year. Ordering costs are $25 per order with an average purchasing price of $100. Annual inventory carrying costs are estimated to be 40% of the unit cost. Required: a.Determine the economic order quantity. b.Determine the annual cost savings if the shop changes from an order size of 10 units to the economic order quantity. c.Since the shelf life is limited, the IBP Grocery 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.

Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases DVDs from Globe at $25.00 per DVD; DVDs are shipped in packages of 63. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 314,000 DVDs at a rate of 6600 DVDs per week. DVD Mart earns 15% on its cash investments. The purchase-order lead time is one week. The following cost data are available: What are the annual relevant ordering costs?

The Jarvis Corporation produces bucket loader assemblies for the tractor industry. The product has a long term life expectancy. Jarvis has a traditional manufacturing and inventory system. Jarvis is considering the installation of a just-in-time inventory system to improve its cost structure. In doing a full study using its manufacturing engineering team as well as consulting with industry JIT experts and the main vendors and suppliers of the components Jarvis uses to manufacture the bucket loader assemblies, the following incremental cost-benefit relevant information is available for analysis: The Jarvis cost of investment capital hurdle rate is 15%. One time cost to rearrange the shop floor to create the manufacturing cell workstations is $275,000. One time cost to retrain the existing workforce for the JIT required skills is $60,000. Anticipated defect reduction is 40%. Currently there is a cost of quality defect assessment listed as $150,000 per year. The setup time for each of the existing functions will be reduced by 67%. Currently the forecast for setup costs are $225,000 per year. Jarvis will expect to save $200,000 per year in carrying costs as a result of having a lower inventory. The suppliers will require a 15% premium over the current level of prices in order to position themselves to supply the material on a smaller and more frequent schedule. Currently the materials purchases are $1,500,000 per year. Required: Determine whether it is in the best interest of Jarvis Corporation to install a JIT system.

Just-in-time purchasing describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations.

The economic order quantity model completely ignores ________.

The demand-pull feature of JIT production systems results in close coordination among workstations and smooths the flow of goods.

Which of the following statements is true of relevant inventory costs?

A successful implementation of a JIT production system should result in a lowering of the inventory turnover ratio.

In a just-in-time system, suppliers are selected primarily on the basis of their ability to provide materials and products at the lowest possible price.

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

Why do conflicts arise between the EOQ model's optimal order quantity and the order quantity that managers regard as optimal?

The management accountant aids in MRP by ________.

Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases DVDs from Globe at $28.00 per DVD; DVDs are shipped in packages of 68. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 321,000 DVDs at a rate of 6100 DVDs per week. DVD Mart earns 11% on its cash investments. The purchase-order lead time is one week. The following cost data are available: What are the relevant total costs?

The executive vice president of Robotics, Inc., 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 vice president 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?

Which of the following statements best defines a trigger point in a sequential-tracking costing system?

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 incoming freight charges of inventories are ________.