Question 1

Just-in-time purchasing is guided solely by the economic order quantity.

Accepted Answer

Just-in-time purchasing is a method that focuses on receiving goods and materials just in time to be used in production or to meet customer demand. It is not guided solely by the economic order quantity, but rather by the overall production schedule and customer demand.

Question 2

The ________ describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers.

Accepted Answer

The supply chain is a system that involves the movement of goods, services, and information from the initial sources of materials and services, through a chain of intermediaries, to the ultimate delivery of products to consumers. It encompasses all activities involved in the transformation of materials into finished products and their delivery to the end-user. The other options, customer list, ERP, and MRP, are all related to supply chain management but do not fully encompass the entire flow of goods, services, and information.

Question 3

A push-through system that manufactures finished goods for inventory on the basis of demand forecasts is referred to as:

Accepted Answer

The push-through system described in the question is based on demand forecasts and manufactures finished goods for inventory. This is an example of a materials requirements planning system, which uses demand forecasts to plan production and inventory levels. Just-in-time purchasing, relevant total costs, and economic order quantity are all related to inventory management but are not specific to a push-through manufacturing system based on demand forecasts.

Question 4

Just-in-time purchasing describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations.

Accepted Answer

Supply chain describes the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers, regardless of whether those activities occur in the same organization or in other organizations.

Question 5

When using a vendor-managed inventory system to enhance the features of supply chain management, a challenging issue is:

Accepted Answer

All of the given options can be challenging issues when implementing a vendor-managed inventory system. Communication and trust are necessary for successful collaboration between the vendor and the customer, sharing of accurate and timely information is important for effective inventory management, and potentially incompatible information systems can pose a barrier to data sharing and integration.

Question 6

Increases in the carrying cost and decreases in the ordering cost per purchase order result in:

Accepted Answer

According to the EOQ model, as the carrying cost increases or the ordering cost decreases per purchase order, the optimal order quantity (EOQ) will decrease. This is because increasing the carrying cost encourages smaller batch sizes, while reducing the ordering cost per purchase order makes it more economical to place more frequent and smaller orders. As a result, smaller EOQ amounts would be chosen to balance the costs of holding inventory against the cost of ordering. Therefore, Option A (smaller EOQ amounts) is the best choice in this case.

Question 7

Flashdrive Company sells 200 flash drives per week. Purchase-order lead time is 1-1/2 weeks and the economic-order quantity is 450 units. What is the reorder point?

Accepted Answer

To calculate the reorder point, we need to consider the demand during lead time. 
Demand during lead time = Average weekly demand x Lead time
= 200 units/week x 1.5 weeks
= 300 units

Then, we add safety stock to the demand during lead time. 
Safety stock = z-score x standard deviation of demand during lead time
Assuming a z-score of 1.65 (corresponding to a 95% service level) and a standard deviation of 20 units, 
Safety stock = 1.65 x 20
= 33 units

Therefore, the reorder point = demand during lead time + safety stock
= 300 units + 33 units
= 333 units, which is closest to choice B) 300 units.

Question 8

The executive vice president of Robotics, Inc., is concerned because the cost of materials has not been in line with the budget for several periods, even after implementing an EOQ model. The company has the normal direct material variance computations of price and efficiency at the end of each month. The price variance of the direct materials used is usually near expectations. The vice president does not understand how the budget differences are always larger than the material price variances.
Required:
What explanation can you give for the evaluation problems presented?

Accepted Answer

The answer of The executive vice president of Robotics, Inc.,...

Question 9

What is a supply chain, and what are the benefits of a supply chain analysis? Provide an example of these benefits.

Accepted Answer

The answer of What is a supply chain, and what...

Question 10

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% 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.

Accepted Answer

The answer of The IBP Grocery orders most of its...

Question 11

A conflict between the EOQ model's optimal order quantity and the order quantity the purchasing manager, evaluated on conventional accounting numbers, regards as optimal is considered a(n):

Accepted Answer

The conflict between the EOQ model's optimal order quantity and the purchasing manager's preferred order quantity based on conventional accounting numbers suggests that the performance evaluation system may need to be reevaluated. This is because the purchasing manager has different incentives and objectives that may not align with the EOQ model's optimal order quantity. By reevaluating the performance evaluation system, the organization can ensure that it aligns with the overall goals of the organization and reduces conflicts between different departments.

Question 12

Relevant opportunity cost of capital is the return forgone by investing capital in inventory rather than elsewhere.

Accepted Answer

Relevant opportunity cost of capital refers to the return that is forgone by investing capital in one option instead of another. In the context of inventory management, it means that the opportunity cost of capital is the return that could have been earned if the same capital was invested in another opportunity rather than inventory. Thus, option A is correct.

Question 13

The annual relevant carrying costs of inventory consist of incremental costs plus the opportunity cost of capital.

Accepted Answer

The statement is true. Relevant carrying costs include both incremental costs (such as storage, handling, and insurance) as well as the opportunity cost of capital tied up in inventory (i.e. the amount of money that could have been invested elsewhere).

Question 14

Just-in-time purchasing requires:

Accepted Answer

Just-in-time purchasing requires smaller and more frequent purchase orders to reduce inventory holding costs and improve supply chain responsiveness. This approach allows companies to receive the necessary materials or goods exactly when they are needed, avoiding the need to store excess inventory for long periods.

Question 15

Answer the following questions using the information below:
Owen-King Company sells optical equipment. Lens Company manufactures special glass lenses. Owen-King Company orders 5,200 lenses 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 lenses per week. The following data are available:
 
-What is the reorder point?

Accepted Answer

The answer of Answer the following questions using the information...

Question 16

Answer the following questions using the information below:
Owen-King Company sells optical equipment. Lens Company manufactures special glass lenses. Owen-King Company orders 5,200 lenses 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 lenses per week. The following data are available:
 
-What is the economic order quantity for Owen-King Company?

Accepted Answer

The answer of Answer the following questions using the information...

Question 17

Companies that implement JIT purchasing will switch their suppliers when another supplier offers a lower price.

Accepted Answer

JIT (Just-In-Time) purchasing focuses on reducing inventory costs and improving efficiency, often prioritizing long-term supplier relationships and reliability over simply switching for lower prices.

Question 18

Wilson's Deli can predict with virtual certainty the demand for its products. Wilson's sells 30 hams per week. Purchase-order lead time is 3 weeks and the economic-order quantity is 75 hams. What is the reorder point?

Accepted Answer

Reorder Point = (Average daily demand x Lead time in days) + Safety Stock
Since the demand is certain at 30 hams per week, the average daily demand is 30/7 = 4.29 hams per day. 
Lead time is given at 3 weeks, which is 21 days. 
Safety stock is assumed to be 0 since demand is always certain. 
Therefore, Reorder Point = (4.29 x 21) + 0 = 90 hams.

Question 19

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 favorable. However, recently, things have turned negative.
In recent months, everything seems to be operating in a crisis management mode. Although most cost variances remain favorable, 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?

Accepted Answer

The answer of The manufacturing manager of New Technology Company...

Question 20

Video Boy has one particular product that has an annual demand of 2,000 units. Total manufacturing costs per unit total $20. Ordering costs for the product total $25 per purchase order. Currently, the carrying costs per unit are 25% of manufacturing costs.
Required:
Determine the economic manufacturing order quantity.

Accepted Answer

The answer of Video Boy has one particular product that...

Quiz 20: Inventory Management, Just-In-Time, and Simplified Costing Methods