Exam 19: Inventory Cost Management Strategies

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. -If Ferry Company has a safety stock of 160 units and the average daily demand is 20 units, how many days can be covered if the shipment from the supplier is delayed by 12 days?

Answer the following question(s)using the information below: Garry's Golf Supplies is a local retail outlet which sells golf balls.Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72, FOB destination.Annual demand is 172,800 golf balls at a rate of 3,322 balls per week.Garry'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, how many deliveries will be made to Garry's Golf Supplies during each time period?

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.

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 and there was no variance.Backflush costing is used with trigger points at completion of finished goods and sale of product.Additional information for the month is as follows: Required: Record all journal entries for the monthly activities related to the above transactions based on backflush costing.

Tornado Electronics manufactures CD players.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.Journal entries are recorded at three trigger points using backflush costing: purchase of direct materials, completion of finished goods, and sale of product.Variances are offset to cost of goods sold.Additional information is as follows: Required: Record all journal entries for the monthly activities related to the above transactions based on backflush costing.

Answer the following question(s)using the information below: Garry's Golf Supplies is a local retail outlet which sells golf balls.Garry's purchases the golf balls from Green Grass Incorporated at $0.75 per ball; the golf balls are shipped in cartons of 72, FOB destination.Annual demand is 172,800 golf balls at a rate of 3,322 balls per week.Garry's Golf Supplies earns 12% on its cash investments.The purchase order lead time is one week.The following cost data are available: -What is the economic order quantity for Garry's golf ball purchases?

The management accountant aids in MRP by

Dutch Oven is a bakery company.All processing is in batches of 6 dozen.For March, there were no beginning inventories.Conversion costs and direct materials are the only baking cost accounts.Direct materials are purchased under a just-in-time system.The company uses backflush costing with three trigger points: at purchase of raw materials, completion of finished goods, and sale of finished goods.Additional information for the month is as follows: Required: Record all journal entries for the monthly activities related to the above transactions assuming that backflush costing is used.The company uses a standard costing system for recording the purchase and use of direct materials; and, the recording of conversion costs.Material price variances are recorded at the time of purchase then closed to cost of goods sold; all other variances are recorded at the completion of finished goods trigger point as a direct charge, or credit to Cost of Goods Sold.

Peckford Ltd.purchases 900,000 units of its product every year.The ordering costs are $125 per order and the annual carrying cost of one unit is $1.50.Under its current inventory policy, it purchases the units 60 times during the year, in batches of 15,000 units per order.Required: a.Calculate the EOQ for Peckford Ltd. b.By ordering at the EOQ, how much in inventory costs will Peckford Ltd.save per year?

The annual demand for a company's product is 3,750 units, and monthly demand varies from 200 to 400 units with the following probability of demand: 200 units have a 25 percent probability 300 units have a 50 percent probability 400 units have a 25 percent probability The EOQ model provides an optimal order quantity of 250 units.The opportunity costs of being out of stock are $2 per unit, with a carrying cost of $13 per unit, and the reorder point is 250 units.Required: a.Prepare a table showing stockouts, expected stockout costs, related carrying costs, and total costs, at each level of demand if the selected safety stocks are: 0, 50, 100 and 150. b.What is the best level of safety stock to carry?

The possibility of a conflict between the order quantity that an EOQ model recommends and the order quantity that the purchasing manager regards as optimal is increased with

Answer the following questions using the information below: The following information applies to Labs Plus, which supplies microscopes to laboratories throughout the country.Labs Plus purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation. -What is the reorder point at Labs Plus?

Beta Industries is currently experiencing problems with its inventory of hammer heads.Its manager, Laura Engles currently orders the hammer heads in batches of 6,000.Six orders are placed during the year to meet the estimated sales demand of 36,000 units.Each order costs $75 and each unit costs $0.50 to carry.Ms.Engles maintains a safety stock of 1,000 hammer heads.Required: a.What are Beta's total annual costs (TC)of inventory under its current ordering policy? b.What is the Economic Order Quantity for Beta Industries? c.What is the average inventory if Beta uses the EOQ calculated in part b)and it still maintains its 1,000 units of safety stock? d.What is Beta's annual savings in inventory costs by using the EOQ and maintaining its safety stock?

Just-in-time purchasing is guided solely by the economic order quantity.

Answer the following question(s)using the information below.Walton Industries uses backflush costing.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 actual costs are incurred, at completion of finished goods, and at sale of finished goods, under backflush costing. -Which of the journal entries properly records the finished goods trigger point at Walton Industries?

Ordering costs consist of the costs of goods acquired from suppliers including freight and transportation costs.

The "flush" in backflush refers to the fact that there are no variances in a backflush costing system using standard costs.

Activity-based costing systems enhance backflush costing accounting because of the relatively more accurate budgeted conversion cost per unit for different products.

You are the new controller at Ralston Industries and you have noticed that the company seems to carry a lot of inventory, both in direct materials and in finished goods.At a recent management meeting, you raised this observation.The managers agreed with your observation but stated that it was company policy to carry large inventories.Required: Provide three reasons these managers might offer in support of carrying large inventories?

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: -Disc Company sells 400 discs per week.Purchase order lead time is 3 weeks and the economic order quantity is 900 units.What is the reorder point?