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

Kretzinger Company makes extensive use of financial performance reports for each of its departments. Although most departments have been reporting favorable cost variances with the company's current inventory system, management is concerned about the overall performance of the purchasing department. For example, the following information is for the purchasing of materials for a product the company has been manufacturing for several years: Required: a. Compute the inventory turnover for each year. Can any conclusions be drawn for a yearly comparison of the purchase price variance and the inventory turnover? b. Identify problems likely to be caused by evaluating purchasing only on the basis of the purchase price variance. c. What recommendations will improve the evaluation process?

A demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line is referred to as:

The ________ describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers.

Answer the following questions using the information below: Complete Digital Products manufactures digital cameras. For October, 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 units are sold. -Which of the following entries would occur if the only trigger point is the production of finished units?

Flashdrive Company sells 200 flash drives per week. Purchase-order lead time is 1-1/2 weeks and the economic-order quantity is 450 units. What is the reorder point?

The costs of preparing, issuing, and paying purchase orders, plus receiving and inspecting the items included in orders is:

Companies that implement JIT purchasing will switch their suppliers when another supplier offers a lower price.

An inventory item of XYZ Manufacturing has an average daily demand of 10 units with a maximum daily demand of 12 units. The economic order quantity is 200 units. Without safety stocks, the reorder point is 50 units. Safety stocks are set at 94 units. Required: a. Determine the reorder point with safety stocks. b. Determine the maximum inventory level. c. Determine the average lead time. d. Determine the maximum lead time.

Answer the following questions using the information below: Digital Goods is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Digital Goods at $10.00 per DVD; DVDs are shipped in packages of 25. Digital Goods pays all incoming freight, and DVD Mart does not inspect the DVDs due to Digital Goods' reputation for high quality. Annual demand is 208,000 DVDs at a rate of 4,000 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: -How many deliveries will be made during each time period?

Due to unprecedented growth during the year, Flowers by Kelly decided to use some of its surplus cash to increase the size of several inventory order quantities that had been previously determined using an EOQ model. Required: Identify whether increasing the size of inventory orders will increase, decrease, or have no effect on each of the following items.

Just-in-time systems are similar to materials requirement planning systems in that both systems are demand-pull systems.

Ralph was in the process of completing the quarterly planning for the purchasing department when a major computer malfunction lost most of his data. For direct material XXX he was able to recover the following: Ralph purchases at the EOQ quantity level. Required: Determine the annual demand, the cost of placing an order, the annual carrying cost of one unit, and the economic order quantity.

All of the following are potential financial benefits of just-in-time EXCEPT:

The optimal safety stock level is the quantity of safety stock that minimizes the sum of the annual relevant:

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.

Answer the following questions using the information below: Complete Digital Products manufactures digital cameras. For October, 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 units are sold. -Which of the following journal entries properly reflects the purchase of materials in a JIT environment?

A push-through system that manufactures finished goods for inventory on the basis of demand forecasts is referred to as:

Managing inventories to increase net income requires companies to effectively manage costs associated with goods for sale. Required: Classify the below listed items as either Purchasing Costs, Ordering Costs, Carrying Costs, Stockout Costs, Costs of Quality, or Shrinkage Costs.

A financial benefit of a just-in-time system is that inventory carrying costs are reduced.

Companies that would benefit from backflush costing include companies: