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

Answer the following questions using the information below: The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Relevant ordering costs per purchase order \4 50 Relevant carrying costs per year for each package: Required annual return on investment 15\% Required other costs per wear \4 Annual demand is 30,000 packages per year. The purchase price per package is $48. -What are the relevant total costs at the economic order quantity?

JIT production system always uses a master production schedule to organize the production.

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

The optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and ordering costs.

The reorder point is the quantity level of inventory at which a new purchase order is made.

Which of the following statements is true of a backflush costing system?

Corry Corporation manufactures filters for cars,vans,and trucks.A backflush costing system is used and standard costs for a filter are as follows: Direct materials \ 2.60 Conversion costs Total \ 6.80 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.

The square root in the EOQ model diminishes the effect of estimation errors because it results in the effects of the incorrect numbers becoming smaller.

The only disadvantage of JIT purchasing is the higher levels of carrying and inspection costs.

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

Answer the following questions using the information below: Globe Inc. is a distributor of DVDs. DVD Mart is a local retail outlet which sells blank and recorded DVDs. DVD Mart purchases tapes from Globe at $25.00 per DVD; DVDs are shipped in packages of 60. Globe pays all incoming freight, and DVD Mart does not inspect the DVDs due to Globe's reputation for high quality. Annual demand is 312,000 DVDs at a rate of 6,000 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: Relevant ordering costs per purchase order \1 14.50 arrying costs per package per year: Relevant insurance, materials handling, breakage, etc., per year \4 .50 -What are the annual relevant carrying costs?

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

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

If the two trigger points are completion of good finished units of product and sale of finished goods,which of the following entries would be used to record cost of finished units completed under backflush costing?

________ is also called lean production.

Which of the following statements is true of costs associated with goods for sale?

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: Purchase Year Quantity Used Average Inventory Price Variance 20\times1 40,000 8,000 \ 1,000 20\times2 60,000 15,000 10,000 20\times3 60,000 20,000 12,000 20\times4 50,000 12,500 20,000 20\times5 54,000 18,000 8,000 20\times6 58,000 23,200 9,500 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?

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?

An inventory item of Avizone Corp.has an average daily demand of 25 units with a maximum daily demand of 30 units.The economic order quantity is 500 units.Without safety stocks,the reorder point is 125 units.Safety stocks are set at 235 units. Required: a.Determine the reorder point with safety stocks. b.Determine the maximum inventory level. c.Determine the average lead time.

Just-in-time costing system is a costing system that omits recording some or all of the journal entries relating to the stages from purchase of direct materials to the sales of finished goods.