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

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.

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.

Answer the following questions using the information below: 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 $0.75 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 155,520 golf balls at a rate of 2,991 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?

Answer the following questions using the information below: 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 journal entries properly records the purchase of direct materials?

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?

When using a vendor-managed inventory system to enhance the features of supply chain management, a challenging issue is:

Traditional normal and standard costing systems use:

A "demand-pull" system, often described as a materials requirement planning system, focuses first on the forecasted amount and timing of finished goods and then determines the demand for materials components and subassemblies at each of the prior stages of production.

A conflict between the EOQ model's optimal order quantity and the order quantity the purchasing manager, evaluated on conventional accounting numbers, regards as optimal is considered a(n):

Safety stock is used as a buffer against unexpected increases in demand, uncertainty about lead time, and unavailability of stock from suppliers.

Corry Corporation manufactures filters for cars, vans, and trucks. A backflush costing system is used and standard costs for a filter are as follows: Filters are scheduled for production only after orders are received, and are shipped immediately upon completion. This results in product costs being charged directly to cost of goods sold. In December, 3,000 filters were produced and shipped. Materials were purchased at a cost of $8,450 and actual conversion costs of $13,650 were recorded. Required: Prepare journal entries to record December's costs for the production of the filters.

Answer the following questions using the information below: The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 20,000 packages per year. The purchase price per package is $32. -The annual relevant total costs are at a minimum when relevant:

A grouping of all the different types of equipment used to make a given product is referred to as:

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.

Inventory management is the planning, organizing, and controlling activities that focus on the flow of materials into, through, and from the organization.

The opportunity cost of the stockout includes lost contribution margin on the sale NOT made plus any contribution margin lost on future sales due to customer ill will.

The annual relevant carrying costs of inventory consist of incremental costs plus the opportunity cost of capital.

Answer the following questions using the information below: The Wood Furniture company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Annual demand is 20,000 packages per year. The purchase price per package is $32. -What are the total relevant costs, assuming the quantity ordered equals 1,000 units?

A positive aspect of backflush costing is the presence of the visible audit trail.

Discuss considerations that should be fully taken into account when developing inventory related relevant costs for use in an economic order quantity (EOQ)model.