Exam 19: Inventory Cost Management Strategies

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.

Use the information below to answer the following question(s).Roller Sports Ltd.manufactures various skateboards.For March there were no beginning inventories of direct materials, and no beginning or ending work-in-process.Only one indirect manufacturing cost category is currently in use, "Conversion Costs." Journal entries are recorded when materials are purchased and when conversion costs are allocated under backflush costing.Following is financial information for March. -Which of the journal entries properly records the incurrence of conversion costs?

What is a supply chain, and what are the benefits of a supply chain analysis? Provide an example of these benefits.

Shrinkage costs result from water damage to clothing and other soft goods.

Sudbury Ore Company mines nickel ore for production into various metal products.During recent years the company has had large fluctuations in its inventories of metal ingots.Much of the volatility of the inventory levels is due to the variability of demand by the company's largest customers, automobile manufacturers.For large orders the company has the technology to quickly shift production from one product to another.Required: Explain how the company can improve its inventory control system and give the advantages of whatever you recommend.

Answer the following question(s)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 10,000 packages per year.The purchase price per package is $16. -What are the Wood Furniture Company annual relevant total costs at the economic order quantity?

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

Party Animals orders 10,400 stuffed tigers per year, at $10 per tiger, FOB destination.Party Animals earns 12% on its cash investments.The purchase order lead time is 3 weeks.The following data are available: What is the cost of the prediction error?

A positive aspect of backflush costing is the presence of a continuous inventory audit trail.

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.

Use the information below to answer the following question(s).Movie Time is a distributor of DVDs.Video Mart is a local retail outlet which sells blank and recorded DVDs.Video Mart purchases DVDs from Movie Time at $5.00 each; the units are shipped in packages of 25.Movie Time pays all incoming freight, and Video Mart does not inspect the DVDs due to Movie Time's reputation for high quality.Annual demand is 104,000 DVDs at a rate of 2,000 units per week.Video Mart earns 15% on its cash investments.The purchase order lead time is one week.The following cost data are available: -What is the economic order quantity?

Answer the following question(s)using the information below: Owen-King Company sells optical equipment.Lens Company manufactures special glass lens.Owen-King Company orders 5,200 lens per year, 100 per week at $20 per lens.Lens Company covers all shipping costs.Owen-King Company earns 30% on its cash investments.The purchase order lead time is 2.5 weeks.Owen-King Company sells 125 lens per week.The following data is available: -What is the economic order quantity for Owen-King Company?

Answer the following question(s)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 10,000 packages per year.The purchase price per package is $16. -What is the economic order quantity for Wood Furniture Company?

Use the information below to answer the following question(s).Office Supply House purchases 4,160 reams of paper per year, ordered in lots of 80 reams per week at $150 per ream.The vendor covers all shipping costs.Office Supply House is not required to inspect the shipment upon entry.Office Supply House earns 20% on its cash investments.The purchase order lead time is two weeks.The following cost data are available: -The level of inventory which should trigger a new order is called

Primary components that manufacturers would use to evaluate suppliers under a just-in-time system would include all of the following EXCEPT

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 favourable.However, recently things have turned negative.In recent months everything seems to be operating in a crisis management mode.Although most cost variances remain favourable, 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?

Use the information below to answer the following question(s).Movie Time is a distributor of DVDs.Video Mart is a local retail outlet which sells blank and recorded DVDs.Video Mart purchases DVDs from Movie Time at $5.00 each; the units are shipped in packages of 25.Movie Time pays all incoming freight, and Video Mart does not inspect the DVDs due to Movie Time's reputation for high quality.Annual demand is 104,000 DVDs at a rate of 2,000 units per week.Video 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?

Goal-congruence problems may occur when an inconsistency evolves between the decision model used and the model used to evaluate the performance of the person implementing the decision.

Arrow Manufacturing Ltd.distributes golf clubs.Its annual demand for next year is forecasted at 14,000 sets at an average cost of $425 per set.In reviewing its historical ordering costs for the past 3 years it noted that costs were $12,900, $16,400 and $20,100 at order volumes of 20, 50 and 80 respectively.Arrow is forecasting an increase of 10% in its fixed ordering costs and a 15% increase in its variable ordering costs.The fixed ordering costs relate to allocations of supervisory time, computer time, and warehouse space.In addition to the order processing, the company must receive and inspect the units.Receiving and inspecting activities require 5 hours per order at a direct labour rate of $12 per hour.Variable overhead related to receiving and inspecting activities is applied at a rate of 40% of direct labour dollars.In reviewing its other activities, Arrow came up with the following estimates for next year: The company is closed for two weeks in the summer and again for 2 weeks over Christmas.This results in 48 work weeks in the year and the company operates 5 days per week.Required: a.Determine the Economic Order Quantity (EOQ)for Arrow for next year.What are the total annual inventory costs at the EOQ? b.Determine the reorder point in units assuming that the lead time is 7 days. c.Now assume the company has found a new supplier that is willing to supply on a just-in-time basis.Inspection and receiving time would be lowered to 1.5 hours per order and the annual estimated damage would be cut by 75%.Storage and inventory insurance would drop to $4.50 and $0.60 respectively.The variable ordering cost would drop to $65 due to integrated ordering systems.However, the annual cost to purchase the golf sets will increase to $428.Determine the new EOQ.Should the company go with the new supplier or maintain its current arrangements?

Use the information below to answer the following question(s).Movie Time is a distributor of DVDs.Video Mart is a local retail outlet which sells blank and recorded DVDs.Video Mart purchases DVDs from Movie Time at $5.00 each; the units are shipped in packages of 25.Movie Time pays all incoming freight, and Video Mart does not inspect the DVDs due to Movie Time's reputation for high quality.Annual demand is 104,000 DVDs at a rate of 2,000 units per week.Video Mart earns 15% on its cash investments.The purchase order lead time is one week.The following cost data are available: -What are the total relevant inventory costs?