Inventory Control Management
1.If demand in units is 18000, relevant ordering cost for each
year is $150 and an order quantity is 1500 then annual
relevant ordering cost would be
a)$200
b)$190
c)$160
d)$180
Answer D
2.If relevant opportunity cost of capital is $2950 and relevant
carrying cost of inventory is $6700 then relevant incremental
cost will be
a)$9,650
b)$2,350
c)$3,750
d)$2,750
Answer C
3.Profit forgone by capital investment in inventory rather than
investment of capital to somewhere else is classified as
a)relevant purchase order costs
b)relevant inventory carrying costs
c)irrelevant inventory carrying costs
d)relevant opportunity cost of capital
Answer D
4. An example of shrinkage costs includes
a)incoming freight
b)storage costs
c)insurance
D)clerical errors
Answer D
5.If relevant incremental costs are $5000 and relevant
opportunity cost of invested capital is $2500 then relevant
inventory carrying costs would be
a) $7,500
b) $7,000
c) $6,500
d) $6,000
Answer A
6.Costing system which omits some of journal entries in
accounting system is known as
A)ain-time costing
b)trigger costing
c)back flush costing
d)lead time costing
Answer C
7.Decision model to calculate optimal quantity of inventory to
be ordered is called
a)efficient order quantity
b)economic order quantity
c)rational order quantity
d)optimized order quantity
Answer B
8.Stage in manufacturing cycle at which journal entries are
made in system of accountancy is known as
a)chaining point
b)recording point
c)lead point
d)trigger point
Answer D
9.If required rate of return is 12% and per unit cost of units
purchased is $35 then relevant opportunity cost of capital will
be
a)$6.20
B)$7.20
c)$4.20
d)$5.20
Answer C
10. Method of costing that supports creation of value for
customer by accounting whole value stream rather than
individual departments or products is classified as
a)economic accounting
b)back-flush accounting
c)lean accounting
d)lead accounting
Answer C
11.If purchase order lead time is 35 minutes and number of
units sold per time is 400 units then reorder point will be
a)14000 units
b)14500 units
c)15000 units
d)15500 units
Answer A
12.An example of purchasing costs include
a)incoming freight
B)storage costs
C)insurance
d)spoilage
Answer C
13.If an average inventory is 2000 units and annual relevant
carrying cost of each unit is $5 then annual relevant carrying
cost will be
a)$5,000
b)$4,500
c)$5,500
d)$6,000
Answer A
14.If demand of one year is 25000 units, relevant ordering
cost for each purchase order is $210 and carrying cost of one
unit of stock is $25 then economic order quantity is
a)678 packages
b)648 packages
c)658 packages
d)668 packages
Answer B
15.Cost of product failure, error prevention and appraisals are
classified as
a)stocking costs
b.stock-out costs
c)costs of quality
sh
D)rinkage costs
Answer C
16. Activities related to coordinating, controlling and planning
activities of flow of inventory are classified as
a)decisional management
b)throughput management
c)inventory management
d)manufacturing management
Answer C
17.Which of the following is true for Inventory control?
a)Economic order quantity has minimum total cost per order
b)Inventory carrying costs increases with quantity per order
c)Ordering cost decreases with lo size
d)All of the above
(Ans:d)
18.The time period between placing an order its receipt in
stock is known as
a)Lead time
b)Carrying time
c)Shortage time
d)Over time
(Ans:a)
19.Re-ordering level is calculated as
a)Maximum consumption rate x Maximum re-order period
b)Minimum consumption rate x Minimum re-order period
c)Maximum consumption rate x Minimum re-order period
d)Minimum consumption rate x Maximum re-order period
(Ans:a)
20.Average stock level can be calculated as
a)Minimum stock level + ½ of Re-order level
b)Maximum stock level + ½ of Re-order level
c)Minimum stock level + 1/3 of Re-order level
d)Maximum stock level + 1/3 of Re-order level
(Ans:a)
1. Sixty percent of Basket Wonders’ annual sales of $900,000
is on credit. If its year-endreceivables turnover is 4.5, the
average collection period and the year-end receivables
are,respectively __________. (Assume a 365-day year.)
A) 81 days and $120,000
B) 73 days and $120,000
C) 73 days and $108,000
D) 81 days and $108,000
Ans: A)
2. If EOQ = 40 units, order costs are $2 per order, and
carrying costs are $.20 per unit, what is theusage in units?
A) 10 units.
B) 16 units.
C) 40 units.
D) 80 units.
Ans: D)
3. If EOQ = 1,000 units, order costs are $200 per order, and
sales total 5,000 units, what is thecarrying cost per unit?
A) $2
B) $10
C) $100
D) $1000
Ans: A)
4. Which of the following statements hold true for safety
stock?
A) The greater the risk of running out of stock, the larger the
safety stock needed.
B) The lower the opportunity cost of the funds invested in
inventory, the smaller the safety stockneeded.
C) The greater the uncertainty associated with forecasted
demand, the lower the level of safety stockneeded.
D) The higher the profit margin per unit, the lower the safety
stock necessary.
Ans: A)
5. Which ratio might you be the most concerned with in
analyzing a firm’s financial leverageposition?
A) Return on equity.
B) Debt-to-total assets.
C) Acid-test.
D) Inventory turnover.
Ans: B)
6. Which of the following relationships hold true for safety
stock?
A) the greater the risk of running out of stock, the smaller the
safety of stock.
B) the larger the opportunity cost of the funds invested in
inventory, the larger the safety stock.
C) the greater the uncertainty associated with forecasted
demand, the smaller the safety stock.
D) the higher the profit margin per unit, the higher the safety
stock necessary.
Ans: D
7. Increasing the credit period from 30 to 60 days, in response
to a similar action taken by all of our competitors, would
likely result in:
A) an increase in the average collection period.
B) a decrease in bad debt losses.
C) an increase in sales.
D) higher profits.
Ans: A
8. Receiving a required inventory item at the exact time
needed.
A) ABC
B) JIT
C) FOB
D) PERT
Ans: B
9. EOQ is the order quantity that over our planning horizon.
A) minimizes total ordering costs
B) minimizes total carrying costs
C) minimizes total inventory costs
D) the required safety stock
Ans: B
10. The credit policy of Spurling Products is “1.5/10, net 35.”
At present 30% of the customers take thediscount, 62% pay
within the net period, and the rest pay within
45 days of invoice. What wouldreceivables be if all customers
took the cash discount?
A) Lower than the present level.
B) No change from the present level.
C) Higher than the present level.
D) Unable to determine without more information.
Ans: A