Exam 19: Inventory Cost Management Strategies

A jeweller orders gems in lot sizes of 1,250 gems.The annual demand for emeralds is 6,250 gems.Ordering costs are $200 per order and carrying costs are $10 per unit annually. Required: a.Determine the economic order quantity. b.Determine the amount of annual cost savings if the company changes from an order size of 1,250 units to the economic order size. c.One supplier offers a discount of $2 per unit off the purchase price of orders in lots of 625 units or more.What impact would this have on the EOQ and should the order size be changed?

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 conversion costs at Walton Industries?

A financial benefit of a just-in-time system is that inventory carrying costs are reduced.

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

The term,supply-chain,describes the flow of goods,services and information from cradle to grave,regardless of whether those activities occur in the same organization or in other organizations.

Financial performance measures are the predominant measures of control in a Just-in-Time system.

An Enterprise Resource Planning (ERP)System comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities.

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

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.

If Jackson Collectibles,Inc.has a safety stock of 35 units and the average weekly demand is 14 units,how many days can be covered if the shipment from the supplier is delayed?

Use the information below to answer the following question(s). Fun 'N' Games manufactures various board games.For January 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. -Which of the journal entries properly records the incurrence of conversion costs?

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?

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

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.

The level of inventory which should trigger a new order is called

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.

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 are the total annual relevant costs at Labs Plus?

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 reorder point for Owen-King Company?

Answer the following question(s)using the information below: The following information has been gathered for Product A: -What is the economic order quantity for Product A?

Answer the following questions using the information below: Acme Inc.manufactures air compressors.For July 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 units are transferred to finished goods inventory.Acme Inc.uses backflush costing.Variances are written off against Cost of Goods Sold when units are transferred to finished goods inventory.The following data pertains to July: -Which of the following journal entries properly reflects Acme's conversion costs allocated including the disposition of the variance?