Chapter 16 - Inventory and Operations Management

Scenario-JG Sawmills To meet the high production demand, Jack Wilson—the owner of JG Sawmills—needs to invest in a frame saw. He has narrowed down to two choices: a double cut frame CZ84 saw with chipper and a HY-200 saw with double aubor bearings. The cost of CZ84 will be $91,000, whereas the cost of HY-200 will be $110,000. The salvage value of each type is $0 (zero) and both will have a useful life of 4 years. - LOOK AT ATTACHED PHOTO

2 years and 11 months

Pledging receivables will get an owner about one-half of the amount that can be collected, whereas, factoring can immediately get an owner _____ percent of the amount due.

75-80

_____ are assets that are expected to provide economic benefits for periods of time greater than one year.

Capital assets

Which of the following is a disadvantage of renting capital assets?

It requires the business to make regular, timely payments.

Which of the following goals need to be addressed for extending credit to customers?

Keeping the number of bad accounts as low as possible

_____ is the cost incurred to substitute one asset with an identical asset.

Replacement value

Depreciation is based on which of the following assumptions?

The value of an asset declines in a predictable manner over the period of utility.

A _____ is a computer-readable tag that is unique to each item of the inventory.

bar code

A _____ describes the difference between the original acquisition cost of capital assets and the amount of depreciation expense that has been recognized to date.

book value

Kevin has taken an apartment on lease for five years with a monthly rental of $3,500. At the end of five years, Kevin will be the legal owner of the apartment after an additional payment of $80,000. This type of lease is an example of a _____ lease.

capital

If a business offers its assets as collateral, lenders are most interested in the _____ value.

disposal

The primary advantage of the payback period is that:

it allows easy comparisons of alternatives.

The primary disadvantage of leasing is that:

it usually costs more than it would cost to purchase an asset.

A(n) _____ is the amount of inventory that results in the minimum cost, considering the cost of lost sales resulting from running out of stock, the number of units sold per day, and the number of days required to receive inventory.

optimum stocking level

Economic order quantity (EOQ) helps a business to think in terms of:

ordering costs and carrying costs.

The practice of acquiring inventory only in response to a completed sale is called a(n) _____.

pull-through system

The _____ is the total cost of substituting an asset with an essentially identical asset.

replacement cost

The capital budgeting equation used to measure the relationship between initial investment and the profits that are expected to be received from making the investment is called _____.

return on investment

A(n) _____ is an amount of inventory carried to ensure that a business will not run out of inventory because of fluctuating levels of sales.

safety stock

An ideal situation is where a business receives new inventory just as the last unit of the previous order is sold. However, this rarely occurs because the:

sales volumes are not constant.