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

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 $0.95 per ball; the golf balls are shipped in cartons of 72. 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 162,520 golf balls at a rate of 3591 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, what are the relevant total costs? (Round costs to the nearest cent and quantities to the nearest whole number. Your answer might be slightly different from the best answer due to rounding.)

Which of the following costs is a relevant inventory stockout cost?

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

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

The journal entry to dispose of the difference between actual conversion costs incurred and standard conversion costs allocated is different under backflush costing and sequential tracking.

Lean accounting is much simpler than traditional product costing because ________.

In a backflush-costing system, no record of work in process appears in the accounting records.

Companies use safety stock as a buffer against unexpected decreases in demand.

Vision Enterprises manufactures converter boxes for high definition TVs. 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. Backflush costing is used with a finished goods trigger point. Additional information is as follows: Required: Record all journal entries for the monthly activities related to the above transactions if backflush costing is used.

Relevant total costs in the economic order quantity decision model equal relevant ordering costs plus which of the following costs?

Just-in-Time (JIT) production systems are also referred to as lean production.

Tornado Electronics manufactures stereos. 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. Backflush costing is used with a finished goods trigger point. Additional information is as follows: Required: Record all journal entries for the monthly activities related to the above transactions if backflush costing is used.

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 $29.00 per DVD; DVDs are shipped in packages of 70. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 320,000 DVDs at a rate of 6500 DVDs per week. DVD Mart earns 13% on its cash investments. The purchase-order lead time is one week. The following cost data are available: What is the economic order quantity?

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

The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 33,000 packages per year. The purchase price per package is $50. What are the total relevant costs, assuming the quantity ordered equals 1500 units?

For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information: Required: Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.

Lean accounting takes in to consideration all costs associated with inventories.

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.

The manufacturing manager of New Technology Company is concerned about the company's newest plant. When the plant began operations three years ago, it had the best of everything. It had modern equipment, well-trained employees, engineered work and assembly stations, and a controlled environment. During the first two years, the evaluation results were very good with almost all cost variances being favorable. However, recently, things have turned negative. In recent months, everything seems to be operating in a crisis management mode. Although most cost variances remain favorable, the plant's segment contribution is declining and customers are complaining about poor quality and slow delivery. Several customers have suggested that they may take their business elsewhere if things do not improve. The shop floor is in continual turmoil. In-process inventory is everywhere, production employees have difficulty finding jobs that need to be worked on, and scheduling has requested a larger computer to keep track of work in process. The vice president of sales does not know where to begin with solving the customers' problems. It seems that everyone is working very hard and the plant has the best facilities and trained employees in the industry. Required: What is the nature of the plant's problems? What recommendation would you make to help improve the situation?

Games R Us manufactures various games. For March, there were no beginning inventories of direct materials and no beginning or ending work in process. Conversion costs is the only indirect manufacturing cost category currently used. Journal entries are recorded when materials are purchased and when conversion costs are allocated under backflush costing. Which of the following entries properly records the cost of goods sold for the month?