Which of the following categories of costs are important when managing inventories
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ACCT3203 Contemporary Management Accounting
Tutorial Questions with Suggested Answers
Inventory Management, Just-in-Time, and Simplified Costing Methods
PART (A): Multiple Choice
Instruction
: Select the
best
answer for the following questions.
1.
Which of the following categories of costs are important when managing inventories of goods for
sale according to the authors of the text?
a.
purchasing, ordering, supply, spoilage, and opportunity
b.
purchasing, stockout, carrying, ordering, costs of quality, and shrikage costs
c.
buying, holding, invoicing, opportunity, and investment
d.
supply, obsolescence, holding, stockout, and transportation-in
2.
The economic order quantity ignores:
a.
purchasing costs
b.
relevant costs
c.
stock-out costs
d.
both (a) and (c) are correct
1
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 3 TO 5:
Raphael Company sells optical equipment. Lens Company manufactures special glass lenses. Raphael
Company orders 5,200 lenses per year, 100 per week, at $20 per lens. Lens Company covers all shipping
costs. Raphael Company earns 30% on its cash investments. The purchase-order lead time is 2 weeks.
Raphael Company sells 125 lenses per week. The following data are available:
Relevant ordering costs per purchase order
$21.25
Relevant insurance, materials handling, breakage, and so on, per year
$ 2.50
3.
What is the economic order quantity for Raphael Company?
a.
325 lenses
b.
297 lenses
c.
210 lenses
d.
161 lenses
EOQ
=√(2DP/C) = √(2x5,200x$21.25)/[($20x30%)*+$2.50]
=161.25
Ξ
161
Carrying costs*
= Relevant insurance, materials handling, breakeage .. + Opportunity Costs
= $2.50 + ($20 x30%) =2.50 +6.00
4.
What is the reorder point?
a.
220 lenses
b.
250 lenses
c.
375 lenses
d.
450 lenses
Reorder point
=Number of units sold x Purchase order lead time
=
125 lenses x 2 weeks
=
250 lenses
5.
Determine the safety stock required to prevent stock-outs assuming the
maximum lead time
is
3
weeks
and the
maximum weekly demand
is
150 lenses
a.
200 lenses
b.
250 lenses
c.
375 lenses
d.
450 lenses
e.
none of the above.
Safety stock = [Maximum lead time demand] – Re-order point
Maximum demand per week
150 lenses
2
Maximum lead time
x 3 weeks
Maximum lead time demand
450 lenses
Reorder point without safety stock
250 lenses
Safety stock
200 lenses
THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 6 TO 9:
Short Grass Incorporated is a distributor of golf balls. Martin’s Golf Supplies is a local retail outlet which
sells golf balls. Martin’s purchases the golf balls from Short Grass Incorporated at $0.75 per ball; the golf
balls are shipped in cartons of 72. Short Grass Incorporated pays all incoming freight, and Martin’s Golf
Supplies does not inspect the balls due to Short Grass’ reputation for high quality. Annual demand is
155,520 golf balls. Martin’s Golf Supplies earns 12% on its cash investments. The purchase-order lead
time is one month. The following costs data are available:
Relevant ordering costs per purchase order
$125.00
Carrying costs per carton per year:
Relevant insurance, material handling, breakage, etc., per year
$ 0.77
6.
If Martin’s makes an order (1/12 of annual demand) once per month, what are the
relevant total
costs
?
a.
$1,500
b.
$652.50
c.
$2,152.50
d.
$3,000
Order Quantity = Annual Demand/12
= 155,520÷12
= 12,960 golf balls per month
= 12,960 ÷72
=
180 carton
per month
RTC = Ordering Costs + Carrying Costs
Carrying Costs per carton = [$0.77 + ($0.75 x 72 x 12%)] = $0.77 + 6.480=
$7.25
Relevant Total Costs
= [Number of Orders x Ordering Costs] + [Average Inventory x CC per carton
= (12 x $125) + [(180/2) x $7.25]
= $ 1,500 + $652.50
=
$2,152.50
3
[Solved] Which of the following categories of costs are important when managing inventories
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- Submitted On 19 Jul, 2018 06:39:13

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