Exam 20: Inventory Cost Management Strategies

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 materials are purchased and when conversion costs are allocated under backflush costing. -Which of the journal entries properly records conversion costs?

Bottle It has one particular product that has an annual demand of 1,000 units. Total manufacturing costs per unit total $40 and set-up costs per batch are $15. Direct material ordering costs for the product total $10 per order. Currently the carrying costs per unit are 25 percent of manufacturing costs. Required: Determine the economic manufacturing (order) quantity.

Key Smith Company manufactures all types of locks for exterior doors. All processing is in batches of 100 and is initiated when an order is received. For August there were no beginning inventories. Each type of knob uses the same direct materials although the processing steps are slightly different. Conversion Costs and Direct Materials are the only manufacturing cost accounts. Direct Materials are purchased under a just-in-time system. Standard costs and actual costs were the same for the month. Backflush costing is used with purchase and sale trigger points. Additional information for the month is as follows: Required: Record all journal entries for the monthly activities related to the above transactions if backflush costing is used.

Corry Corporation manufactures filters for cars, vans, and trucks. A backflush costing system is used. 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, assuming there was no over/under allocated conversion cost.

The Economic Order Quantity increases with demand and ordering costs and decreases with carrying costs.

Answer the following question(s) using the information below: Green Grass Incorporated is a distributor of golf balls. 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. Green Grass Incorporated pays all incoming freight, and Garry's Golf Supplies does not inspect the balls due to Green Grass' reputation for high quality. 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: -If Garry's makes an order (1/12 of annual demand) once per month, what are the relevant total costs?

Backflush costing does not strictly adhere to generally accepted accounting principles. Explain why. Also, describe the types of businesses that might use backflush costing.

Expediting costs of a stockout include the additional ordering costs, plus any associated transportation costs.

Which of the following would be expected when using a supply-chain approach to inventory management?

The EOQ model is designed to emphasize the tradeoff between which of the following factors?

The following information has been gathered for Product A: What is the economic order quantity?

The annual demand for red, medium polo shirts, for Clothes, Inc. is 25,000 units. The cost of placing an order is $80, and the cost of carrying one unit in inventory for one year is $25. Required: a. Use the economic order quantity model to determine the optimal order size. b. Determine the reorder point assuming a lead time of 10 days, and a work year of 250 days. c. Assuming the maximum lead time is 20 days and the maximum daily demand is 125 units, determine the safety stock required to prevent stockouts.

Purchasing costs generally include the freight and transportation costs on goods acquired from suppliers.

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. The reorder point is 50 units. Safety stocks are set at 94 units. Required: a. Determine the inventory level at the time of reordering. b. Determine the purchase order lead time. d. Determine the maximum purchase order lead time that the company can experience before it has a stockout.

Carrying costs arise when a customer demands a unit of product and that unit is not readily available.

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: What reasons might these managers offer in support of carrying large inventories?

A backflush costing system that journalizes only when raw materials are purchased and when finished goods are sold, will have which of the following results?

The simplest version of the economic-order-quantity decision model assumes all of the following EXCEPT

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?

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