Exam 19: Inventory Cost Management Strategies

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.

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 based on backflush costing.

Stanford Ltd.purchases 1,600,000 units of its product every year.The ordering costs are $50 per order and the annual carrying cost of one unit is $1.60.Under its current inventory policy,it purchases the units 80 times during the year,in batches of 20,000 units per order. Required: a.Calculate the EOQ for Stanford Ltd. b.By ordering at the EOQ,how much in inventory costs will Stanford Ltd.save per year?

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?

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 percent 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.

Traditional budgeted and standard costing systems use

Answer the following question(s)using the information below: The following information has been gathered for Product A: -What are the annual ordering costs for Product A if the company orders at the EOQ amount?

Companies implementing just-in-time production systems manage inventories by minimizing or eliminating them.

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?

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

An important component in several of the cost categories which are not typically recorded in accounting systems is

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?

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 total relevant costs,assuming the quantity ordered equals 500 units?

The lack of buffer inventory in a demand-pull system means production staff has extra time to solve problems.

Which of the following would NOT be typical when a JIT production system is used?

Factors that are relevant in a JIT system,but not for the EOQ model,include

A trigger point is defined as

The economic order quantity decision model

To determine the Economic Order Quantity,the relevant ordering costs are minimized and the relevant carrying costs are maximized.

Just-in-Time (JIT)Production is also called "lean production."