Ch 21: Inventory Management, Just-in-Time, and Simplified Costing Methods

Which of the following is the correct mathematical expression to calculate annual relevant ordering costs? A) Demand in units for a specified period / (Relevant ordering cost per purchase order × Size of each order) B) Size of each order × Relevant ordering cost per purchase order / Demand in units for a specified period C) (Demand in units for a specified period / Size of each order) × Relevant ordering cost per purchase order D) (Demand in units for a specified period - Size of each order) × Relevant ordering cost per purchase order

(Demand in units for a specified period / Size of each order) × Relevant ordering cost per purchase order

Which of the following statements is true of just-in-time production systems? A) In a just-in-time production system, a master production schedule specifies the quantity and timing of each item to be produced. B) Sales budget triggers each step of the production process in a just in time production system. C) Defects arising at one workstation affect other workstations in the line quickly because of the tight links between workstations. D) Production is organized in manufacturing cells in a just in time production system, which are production centers that use a "push-through" approach whereby finished goods are manufactured on the basis of demand forecasts.

Defects arising at one workstation affect other workstations in the line quickly because of the tight links between workstations.

Which of the following statements is true of the economic-order-quantity decision model? A) It assumes purchasing costs are relevant because the cost per unit changes due to the quantity ordered. B) Demand, ordering costs, and carrying costs are all known with certainty. C) It assumes that stockout costs are relevant even if no stockouts occur. D) It assumes that ordering costs and carrying costs are irrelevant

Demand, ordering costs, and carrying costs are all known with certainty.

Which of the following statements is true of just-in-time (JIT) purchasing? A) In JIT purchasing, the optimal safety-stock level is the quantity of safety stock that minimizes the sum of annual relevant stockout and carrying costs. B) JIT purchasing is guided solely by the EOQ model because that model emphasizes the tradeoff between relevant carrying and ordering costs. C) In JIT purchasing, raw materials (or goods) are purchased so that products are delivered just as needed for production or sales. D) Only disadvantage of JIT purchasing is the higher level carrying and inspection costs.

In JIT purchasing, raw materials (or goods) are purchased so that products are delivered just as needed for production or sales.

Which of the following statements is true of lean accounting? A) It is much complex than traditional product costing but produces more accurate product unit costs. B) It does not always compute costs for individual products but does emphasize product costs by value stream. C) It omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods. D) It is acceptable under GAAP.

It does not always compute costs for individual products but does emphasize product costs by value stream.

For inventory carrying costs, which of the following statements is true of the relevant opportunity cost of capital of inventory? A) It is the return received by investing capital in inventory rather than elsewhere. B) It is calculated as the per-unit costs of carrying inventory divided by the required rate of return . C) It is the return foregone by investing capital elsewhere rather than in inventory. D) It is calculated as the required rate of return multiplied by the per-unit costs of acquiring inventory including the purchase price, incoming freight, and incoming inspection.

It is calculated as the required rate of return multiplied by the per-unit costs of acquiring inventory including the purchase price, incoming freight, and incoming inspection.

Which of the following statements best defines setup time? A) It is the time required to manufacture an item, including order preparation time, inspection time, and customer delivery time. B) It is the time required to get equipment, tools, and materials ready to start the production of a component or product. C) It is a time or period ranging from the time when a customer orders goods to the time when they are delivered to the customer. D) It is the time required to create a new product to be sold by a business to its customers.

It is the time required to get equipment, tools, and materials ready to start the production of a component or product.

A system that emphasizes lean production techniques, low quantities of inventory, and close coordination among production workstations is called ________. A) Economic order quantity production B) Just-in-time production C) Materials requirements planning production D) Push-through system

Just-in-time production

Which of the following statements is true of costs associated with goods for sale? A) Appraisal costs is a subcategory of shrinkage costs. B) Special processing costs are always part of purchasing costs. C) Opportunity costs are not recorded in the accounting system. D) Stockout costs are costs that arise when a company runs out of a particular item for which there is no customer demand.

Opportunity costs are not recorded in the accounting system

Which of the following statements is true of costs associated with goods for sale? A) Information-gathering technology increases the reliability and timeliness of inventory information and increases the costs related to inventory. B) Opportunity costs are not recorded in financial accounting systems because they are not a significant component in several cost categories. C) Purchasing costs include incoming freight costs and are reduced by discounts D) Opportunity costs are recorded in financial accounting systems but are a not significant component in several cost categories

Purchasing costs include incoming freight costs and are reduced by discounts

Which of the following is a disadvantage of an enterprise resource planning (ERP) system? A) The use of standard costing systems is not allowed in an ERP system. B) Shifting manufacturing and distribution plans rapidly in response to changes in supply and demand is not possible in an ERP system. C) The ERP systems must often be customized to fit the strategic needs of the user. D) The ERP system increases lead times when purchasing material from a different supplier.

The ERP systems must often be customized to fit the strategic needs of the user.

Which of the following statements is true of relevant inventory costs? A) The salaries paid to clerks, stock keepers, and materials handlers are relevant carrying costs if they are unaffected by changes in inventory levels. B) The costs of expediting an order from a supplier are relevant incremental costs of stockouts. C) Warehouse rent, warehouse workers' salaries and costs of insurance, that change with the quantity of inventory held are irrelevant carrying costs. D) Those ordering costs that change with the number of orders placed are irrelevant ordering costs.

The costs of expediting an order from a supplier are relevant incremental costs of stockouts.

Which of the following costs is a relevant inventory carrying cost of carrying inventory? A) The lost contribution margin on future sales forgone as a result of customer dissatisfaction in product quality. B) The lost contribution margin on sales forgone because of the shortage of inventory. C) The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease. D) The costs of shrinkage

The costs of shrinkage

Which of the following statements is true of the the economic order quantity decision model? A) The economic order quantity increases with higher demand and higher carrying costs and decreases with higher ordering costs. B) The simplest version of the economic order quantity model assumes there are only ordering costs, carrying costs, stockout costs, and purchasing costs. C) It assumes the purchase order lead time is not known with certainty. D) The larger the order quantity, the lower the annual relevant ordering costs and the higher the annual relevant carrying costs.

The larger the order quantity, the lower the annual relevant ordering costs and the higher the annual relevant carrying costs

Which of the following costs is a relevant inventory stockout cost? A) The costs of obsolescence and costs of insurance that change with the quantity of inventory held. B) The return forgone by investing capital in inventory rather than elsewhere. C) The lost contribution margin on sales forgone as a result of customer dissatisfaction due to unavailability of goods. D) The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.

The lost contribution margin on sales forgone as a result of customer dissatisfaction due to unavailability of goods.

Which of the following statements best defines manufacturing cells? A) They are manufacturing areas that use a "push-through" approach whereby finished goods are manufactured on the basis of demand forecasts. B) They are manufacturing centers which focuses on production of a single product and in which workers focus on master one skill so as to be efficient and effective in their work C) They are work areas with different types of equipment grouped together to make related products and to minimize handling costs D) They are production centers positioned in various areas throughout a production facility, close to the associated talent (direct laborers) in which goods are manufactured only after receiving customer orders.

They are work areas with different types of equipment grouped together to make related products and to minimize handling costs

Which of the following statements is true of the financial and nonfinancial measures in just-in-time production systems? A) The inventory turnover ratio is expected to decrease. B) Units produced per hour are expected to increase. C) Manufacturing cycle time is expected to increase. D) Total setup time for machines with respect to total manufacturing time is expected to increase.

Units produced per hour are expected to increase.

Which of the following statements is true of a backflush costing system? A) All costs are tracked sequentially as products pass through each stage of production. B) When inventories are minimal, as in JIT production systems, backflush costing complicates costing systems. C) Usage of a backflush costing system does not satisfy the absorption costing rules of GAAP D) Backflush costing increases the ability of the accounting system to pinpoint the uses of resources at each step in the production process.

Usage of a backflush costing system does not satisfy the absorption costing rules of GAAP

Which of the following statements best defines lean accounting? A) an accounting system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities B) a costing method that supports creating value for the customer by costing the entire value stream thereby eliminating waste in the accounting process C) an accounting system that omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods D) an integrated costing system covering a company's accounting, distribution, manufacturing, purchasing, human resources, and other functions

a costing method that supports creating value for the customer by costing the entire value stream thereby eliminating waste in the accounting process

Which of the following statements best defines backflush costing system? A) an integrated costing system covering a company's accounting, distribution, manufacturing, purchasing, human resources, and other functions B) a costing system that omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods C) a push-through system in which each component in a production line is produced immediately as needed by the next step in the production line D) a costing system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities

a costing system that omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods

Which of the following statements best defines a just-in-time production system? A) a push-through system that manufactures finished goods for inventory on the basis of demand forecasts B) a push-through system in which each component in a production line is produced immediately as needed by the next step in the production line C) a demand-pull system that manufactures finished goods for inventory on the basis of demand forecasts D) a demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line

a demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line

Which of the following statements best defines a materials requirements planning system? A) a demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line B) a push-through system that manufactures finished goods for inventory on the basis of demand forecasts C) a demand-pull system that manufactures finished goods for inventory on the basis of demand forecasts D) a push-through system in which each component in a production line is produced immediately as needed by the next step in the production line

a push-through system that manufactures finished goods for inventory on the basis of demand forecasts

Which of the following statements best defines a trigger point in a sequential-tracking costing system? A) the inventory level at which a new purchase order is generated B) the point at which the sum of annual relevant stockout and ordering costs is minimal C) the production level at which the costing system becomes incapable of tracking the production costs D) a stage in the production cycle at which journal entries are made in the accounting system

a stage in the production cycle at which journal entries are made in the accounting system

All of the following are reasons why a company might carry a safety stock except: A) a buffer against unexpected increases in demand B) a contingency against the uncertainty about lead time C) a strategy to lower the carrying cost of inventory D) a way of softening the impact of sudden unavailability of stock from suppliers

a strategy to lower the carrying cost of inventory

Which of the following statements best defines an enterprise resource planning (ERP) system? A) a demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line as planned by enterprise resource management B) a system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities C) a planning system that omits recording some of the journal entries relating to the stages from the purchase of direct materials to the sale of finished goods D) a system that is made up of work areas with different types of equipment grouped together to make related products

a system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities

A costing system that omits recording some or all of the journal entries relating to the cycle from purchase of direct materials to the sale of finished goods is called ________. A) dependent costing B) synchronous costing C) sequential costing D) backflush costing

backflush costing

Lean accounting is much simpler than traditional product costing because ________. A) it compares value stream costs against costs that include costs of all purchased materials B) it computes the cost of individual products C) calculating actual product costs by value streams requires less overhead allocation D) adding a larger markup on value stream costs to compensate for some of the excluded costs is easier than tracing all non value added costs

calculating actual product costs by value streams requires less overhead allocation

Among different types of costs associated with inventory, the opportunity cost of the investment tied up in inventory is a(n) ________. A) purchasing cost B) ordering cost C) stockout cost D) carrying cost

carrying cost

Relevant total costs in the economic order quantity decision model equal relevant ordering costs plus which of the following costs? A) carrying costs B) stockout costs C) quality costs D) purchasing costs

carrying costs

Under backflush costing approach where three trigger points are used (stage A, stage C, and stage D), the purchase of materials is: A) credited to the Materials and In-Process Inventory Control account B) debited to the Materials and In-Process Inventory Control account C) debited to the Materials Inventory Control account D) ignored because the manufacturing process moves so quickly from acquisition of materials to the sale of the finished good

debited to the Materials and In-Process Inventory Control account

A system that comprises a single database that collects data and feeds it into software applications supporting all of a company's business activities is known as a(n) ________. A) economic order quantity (EOQ) system B) enterprise resource planning (ERP) system C) just-in-time (JIT) system D) material requirements planning (MRP) system

enterprise resource planning (ERP) system

Sharing sales information throughout the supply chain leads to which of the following? A) larger stockouts B) increased manufacturing of products not immediately needed by retailers C) fewer manufacturing orders that had to be expedited D) higher inventories held by each company in the supply chain

fewer manufacturing orders that had to be expedited

A demand-pull system in which each component in a production line is produced immediately as needed by the next step in the production line is referred to as ________. A) just-in-time production B) materials requirements planning C) relevant total costs D) economic order quantity

just-in-time production

Which of the following is not a reason why a company would adopt JIT purchasing practices? A) high shrinkage costs B) low ordering costs C) low carrying costs of inventory D) reliable supply chains

low carrying costs of inventory

The management accountant aids in MRP by ________. A) doing journal entries as requested B) preparing plant appropriation requests C) maintaining accurate records of inventory and its costs D) contacting vendors to make sure they can deliver the materials in time

maintaining accurate records of inventory and its costs

A grouping of all the different types of equipment used to make a given product is referred to as ________. A) total quality management B) materials requirements planning C) manufacturing cells D) economic order quantity

manufacturing cells

An order is received by a company and then spends 1 day in assembly and 3 days in finishing before being stored in the warehouse. On average, the units are stored for 3 days before being shipped to a customer. Which of the following measures would be true? A) work-in-process time of 7 days B) manufacturing cycle time of 4 days C) pass-through time of 6 days D) manufacturing cycle time of 7 days

manufacturing cycle time of 4 days

A push-through system that manufactures finished goods for inventory on the basis of demand forecasts and produces a master schedule for quantity and timing of units to be produced. A) just-in-time purchasing B) materials requirements planning C) relevant total costs D) economic order quantity

materials requirements planning

Among different types of costs associated with inventory, the costs of obtaining purchase approvals are ________. A) purchasing costs B) ordering costs C) stockout costs D) carrying costs

ordering costs

Which of the following is the best definition of inventory management? A) planning and control of the flow inventory into and through an organization B) planning, coordinating, and controlling activities related to the flow of inventory into, through, and out of an organization C) planning and coordinating activities related to the flow of inventory into and through an organization D) planning, coordinating, and control of inventory into an organization

planning, coordinating, and controlling activities related to the flow of inventory into, through, and out of an organization

Among different types of costs associated with inventory, four categories of quality costs are ________. A) control costs, inspection costs, internal failure costs, and external failure costs B) prevention costs, inspection costs, internal failure costs, and external failure costs C) prevention costs, appraisal costs, internal failure costs, and external failure costs D) prevention costs, control costs, internal failure costs, and external failure costs

prevention costs, appraisal costs, internal failure costs, and external failure costs

Among different types of costs associated with inventory, the incoming freight charges of inventories are ________. A) purchasing costs B) ordering costs C) stockout costs D) carrying costs

purchasing costs

The annual relevant carrying costs of inventory consists of the sum of the ________. A) relevant ordering costs and the relevant costs of quality B) relevant ordering costs plus the relevant opportunity costs of capital C) relevant incremental costs plus the relevant opportunity costs of capital D) relevant incremental costs plus the relevant ordering costs

relevant incremental costs plus the relevant opportunity costs of capital

Traditional normal and standard costing systems usually use 4 trigger points to record the flow of costs through the production system. Such costing is called ________. A) backflush costing B) delayed costing C) variable tracking D) sequential tracking

sequential tracking

Which of the following terms is defined as the time required to get equipment, tools, and materials ready to start production? A) setup time B) delivery time C) manufacturing-cycle time D) product design time

setup time

The costs that result from theft of inventory are ________. A) shrinkage costs B) external failure costs C) stockout costs D) costs of quality

shrinkage costs

Increases in the carrying cost and decreases in the ordering cost per purchase order result in ________. A) smaller EOQ amounts B) larger EOQ amounts C) larger relevant total costs D) smaller relevant total costs

smaller EOQ amounts

The costs that result when a company runs out of a particular item for which there is a customer demand are ________. A) shrinkage costs B) shortage costs C) stockout costs D) EOQ estimation costs

stockout costs

The economic order quantity model completely ignores ________. A) carrying costs B) ordering costs C) stockout costs D) the size of a purchase order

stockout costs

The optimal safety stock level is the quantity of safety stock that minimizes the sum of the annual relevant ________. A) stockout costs and carrying costs B) ordering costs and carrying costs C) ordering costs and stockout costs D) ordering costs and purchasing costs

stockout costs and carrying costs

Which of the following term is defined as: "the flow of goods, services, and information from the initial sources of materials and services to the delivery of products to consumers"? A) customer list B) enterprise requirements plan (ERP) C) material requirements plan (MRP) D) supply chain

supply chain

Under economic-order-quantity decision model, which of the following is an assumption? assumed that ________. A) the quantity ordered can vary at each reorder point B) demand, ordering costs, and carrying costs are uncertain C) the purchasing cost per unit is affected by the order quantity D) the same quantity is ordered at each reorder point

the same quantity is ordered at each reorder point

Which of the following statements best defines manufacturing cycle time in a JIT production system? A) the time from when raw materials are received until it becomes a finished good B) the time from when an order is received until it becomes a finished good C) the time from when raw materials are received until it is delivered to the customers D) the time from when an order is received until it is delivered to the customers

the time from when an order is received until it becomes a finished good

The purchase-order lead time is the ________. A) time between placing an order and its delivery B) time between receiving a customer order and producing the products C) time between receiving a customer order and delivering the items D) time required to correct errors in the defective products

time between placing an order and its delivery