Section G Quiz
Owner equity is defined as An amount of credit extended to a borrower. A term representing the residual claim by the company's owners or shareholders, to the company's assets less its liabilities. The value at which an asset is carried on a balance sheet. An entry recording a sum received, listed on the right-hand side or column of an account.
A term representing the residual claim by the company's owners or shareholders, to the company's assets less its liabilities. Owner equity is the working capital employed in a company, computed by deducting the book value of the liabilities from the book value of the assets. For more information, refer to Module 1, Section G, Topic 3
Product costs refer to those costs which are Allocated to the product Period costs Non-manufacturing costs Varied with production
Allocated to the product Product costs are costs allocated by some method to the products being produced. For more information, refer to Module 1, Section G, Topic 3
Using the following information, increasing revenues by $1,000,000 will increase gross profit to 1300000 1700000 1000000 1050000
1300000 Increasing revenue by 1,000,000 increases cost of goods sold to 1,700,000 (overhead does not increase), resulting in a gross profit of 1,300,000. For more information, refer to Module 1, Section G, Topic 3
A typical order of cellphones contains 200 handsets. In a given year, demand for these handsets is 5,000. How many orders would need to be fulfilled each year to meet demand? 100 50 200 25
25 Orders per period = period demand/order quantity. In this case: 5000/200 = 25 For more information, refer to Module 1, Section G, Topic 4
A manufacturer has a 7 working day week. Using a periodic review system, multiple orders are placed every Tuesday, with a lead time of two days. For one item, a manufacturer maintains a safety stock level of 50, and has an average daily demand of 25. What would be the target (maximum) inventory level? 225 175 475 275
275 T = D x (R + L) + SS. In this case: 25 x (7 + 2) + 50 = 275. For more information, refer to Module 1, Section G, Topic 6
The accounting method for valuing inventory that estimates total cost, including allocated overhead, to produce a batch of goods divided by the total number of units produced is Average cost Last in, first out (LIFO) First in, first out (FIFO) Standard cost
Average cost Average cost per unit is based on estimating total cost, including allocated overhead, to produce a batch of goods divided by the total number of units produced. For more information, refer to Module 1, Section G, Topic 3
The financial statement that shows a company's debt is Cash flow Balance sheet Profit and loss Income
Balance sheet A balance sheet shows the resources owned, the debts owed, and the owner's share of a company at a given point in time. For more information, refer to Module 1, Section G, Topic 3
In ABC Classification, an item with the least complex controls and record keeping and high levels of safety stock would receive which classification? C B D A
C Category C items have the least complex controls and record keeping, for example nuts and bolts. They will have a low inventory carrying cost, so plentiful days of supply make sense. They are ordered far less frequently, but in much larger quantities. For more information, refer to Module 1, Section G, Topic 4
Elements of carrying cost include Item, ordering and stockout costs Stockout, capacity and capital costs Ordering, stockout and capacity costs Capital, storage and risk costs
Capital, storage and risk costs Carrying cost is the cost of holding inventory. Carrying cost depends mainly on the cost of capital invested as well as such costs of maintaining the inventory as taxes and insurance, obsolescence, spoilage, and space occupied. For more information, refer to Module 1, Section G, Topic 2
A company that wants to maintain a 99.99% customer service rate will require a considerable amount of safety stock, will incur a significant: Shipping cost Overhead cost Overtime cost Carrying cost
Carrying cost In order to achieve a 99.99% customer service rate, a considerable amount of safety stock will need to be held, in order to fulfil a larger potential MAD. For more information, refer to Module 1, Section G, Topic 4
Inventory turnover is calculated as Sales divided by inventory investment Average inventory divided by standards sales Sales divided by average inventory investment Cost of goods sold divided by average inventory investment
Cost of goods sold divided by average inventory investment Inventory turns = cost of goods sold/average inventory investment. For more information, refer to Module 1, Section G, Topic 3
Inventory carrying costs include Cost of storage and cost of order processing Cost of setup and cost of storage Cost of obsolescence and cost of storage Cost of obsolescence and cost of setup
Cost of obsolescence and cost of storage Carrying costs include cost of obsolescence and cost of storage. The other responses include ordering costs. For more information, refer to Module 1, Section G, Topic 2
An inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year to ensure inventory record accuracy is called Cycle counting Physical inventory Location counting Random counting
Cycle counting Cycle counting is an inventory accuracy audit technique where inventory is counted on a cyclic schedule rather than once a year. For more information, refer to Module 1, Section G, Topic 7
A metric that measures the amount of inventory on hand is: ABC classification Inventory velocity Obsolescence list Days of supply
Days of supply Days of supply is an inventory-on-hand metric converted from units to how long the units will last. For more information, refer to Module 1, Section G, Topic 3
Inventory held due to the unpredictable nature of supply, demand or lead-time is Anticipation inventory Hedge inventory Fluctuation inventory Demand inventory
Fluctuation inventory Fluctuation inventory, also known as inventory buffer, is carried as a cushion to protect against forecast error. For more information, refer to Module 1, Section G, Topic 1
Which of the following costs include transportation, customs duties, and insurance in addition to the purchase price? Acquisition Setup Delivery Item
Item Item cost is the price paid for a purchased item, which consists of the cost of the item and any other direct costs associated with getting the item into the plant. The other options are elements of item cost. For more information, refer to Module 1, Section G, Topic 2
The accounting method for valuing inventory where the most recently received is the first to be used or sold is Standard cost First in, first out (FIFO) Average cost Last in, first out (LIFO)
Last in, first out (LIFO) Last in, first out (LIFO) is a method of inventory valuation for accounting purposes. The accounting assumption is that the most recently received (last in) is the first to be used or sold (first out) for costing purposes, but there is no necessary relationship with the actual physical movement of specific items. For more information, refer to Module 1, Section G, Topic 3
A printing press maintains a high level of paper safety stock. This is likely because of what? Cost of placing an order Product obsolescence Cost of carry inventory Variability of demand
Variability of demand When demand variability is high, forecast error rates will be high, and higher amounts of safety stock will be needed to provide a targeted customer service level. For more information, refer to Module 1, Section G, Topic 4
Product inventory that is accumulated by the manufacturer in advance of the peak selling season is an example of anticipation inventory. fluctuation inventory. transportation inventory. hedge inventory.
anticipation inventory. Anticipation inventories are accumulated above basic pipeline stock to cover projected increases in sales or plant shutdowns and vacations. For more information, refer to Module 1, Section G, Topic 1
A manufacturer is experiencing a delay in raw materials delivery, which will arrive a week later than expected. As a result, it must adjust its level of safety stock. The company needs 85 units of safety stock to meet its customer service level. If the original lead time was six weeks, what is the new level of safety stock required? 85 98 92 99
92 New safety stock = old safety stock x √(new lead time/old lead time). In this case: 85 x √(7/6); or 85 x 1.08 = 92 (rounded). For more information, refer to Module 1, Section G, Topic 4
If a manufacturer typically produces 80 orders of a given product per year, and calculates that three stockouts are acceptable, what is their customer service level? 97% 96% 77% 83%
96% Customer service level = (orders per period Ð stockout chances per period)/orders per period. In this case: 77/80 = 0.96 = 96%. For more information, refer to Module 1, Section G, Topic 4
Cost of goods sold refers to The actual cost of the operation of a unit assigned the responsibility of developing and producing a specific product The computation used to calculate retail costs for the sale of a product The amount of direct materials, direct labor and allocated overhead associated with products sold during a given period of time An accounting classification used on an asset sheet to reflect inventory value
An accounting classification used on an asset sheet to reflect inventory value Cost of goods sold determines the amount of direct materials, direct labor, and allocated overhead associated with the products sold. For more information, refer to Module 1, Section G, Topic 3
Which of the following activities in the physical distribution system creates time value by placing the product close to the customer? Order processing and communication Warehousing Materials handling Distribution inventories
Distribution inventories Distribution inventory includes all finished goods inventory at any point in the distribution system. Distribution inventories create a time value by placing the product close to the customer. For more information, refer to Module 1, Section G, Topic 1
The term used to describe inventory in a network of warehouse, in-transit between warehouses and the consumer is called Finished goods inventory Work-in-process inventory In-transit inventory Distribution inventory
Distribution inventory Distribution inventory typically includes spare parts and finished goods, located in the distribution system (e.g., in warehouses, in-transit between warehouses and the consumer). For more information, refer to Module 1, Section G, Topic 1
The primary objective of cycle counting is to Eliminate the causes of errors Eliminate annual physical inventory Update inventory locations Update inventory quantities
Eliminate the causes of errors The purpose of cycle counting is to find and correct the cause of errors. For more information, refer to Module 1, Section G, Topic 7
Which of the following scenarios warrants considering using economic order quantity? Finished goods with a short shelf life Finished goods which are made to order Finished goods with a component which limits run length Finished goods whose demand is independent and fairly uniform
Finished goods whose demand is independent and fairly uniform Independent demand items with stable demand is one of the assumptions for using EOQ. For more information, refer to Module 1, Section G, Topic 5
The accounting method for valuing inventory where the oldest inventory is the first to be used is First in, first out (FIFO) Standard cost Average cost Last in, first out (LIFO)
First in, first out (FIFO) First in, first out (FIFO) is a method of inventory valuation for accounting purposes. The accounting assumption is that the oldest inventory (first in) is the first to be used (first out), but there is no necessary relationship with the actual physical movement of specific items. For more information, refer to Module 1, Section G, Topic 3
A manufacturer places a replenishment order to replace sold or used items every two months. This is an example of what kind of inventory model? Fixed reorder cycle Two-bin inventory system Perpetual inventory system Min-Max system
Fixed reorder cycle A fixed reorder cycle inventory model is a form of independent demand management. An order is placed every n (n=time units, e.g., months, days, etc.). The quantity in each order is variable, and reflects inventory used/sold. The aim is to replenish inventory to the maximum inventory desired. For more information, refer to Module 1, Section G, Topic 6
Which of the following terms refers to the category of expenses on an income statement that includes the costs of general managers, computer systems, research and development, and others? Accrued expenses Prepaid expenses General and administrative expenses Operating expenses
General and administrative expenses General and administrative expenses are the set of expenses required to administer a business, and which are not related to the construction or sale of goods or services. For more information, refer to Module 1, Section G, Topic 3
Work in process inventory includes Finished goods and quarantined goods still in the plant. Maintenance, repair and operating supplies in the plant. Goods in various stages of completion throughout the plant. Purchased materials in the plant.
Goods in various stages of completion throughout the plant. Work in process (WIP) includes a good or goods in various stages of completion throughout the plant, including all material from raw material that has been released for initial processing up to completely processed material awaiting final inspection and acceptance as finished goods inventory. For more information, refer to Module 1, Section G, Topic 1
A form of inventory buildup to buffer against some event that may not happen is known as Hedge inventory Safety stock Buffer inventory Anticipation inventory
Hedge inventory Hedge inventory is a form of inventory buildup to buffer against some event that may not happen. Hedge inventory planning involves speculation related to potential labor strikes, price increases, unsettled governments, and events that could severely impair a company's strategic initiatives. Risk and consequences are unusually high, and top management approval is often required. For more information, refer to Module 1, Section G, Topic 1
Finished goods shipping from one facility to another is considered which type of inventory? Anticipation Hedge In-transit Pipeline
In-transit In-transit inventory is material moving between two or more locations, usually separated geographically. For more information, refer to Module 1, Section G, Topic 1
Finished goods shipping from one facility to another is considered which type of inventory? Anticipation In-transit Hedge Pipeline
In-transit In-transit inventory is material moving between two or more locations, usually separated geographically. For more information, refer to Module 1, Section G, Topic 1
The necessary activities and techniques used by a corporation to ensure that they always have the desired levels of raw materials to meet demand is called? Safety stock Inventory control Wall-to-wall inventory ABC Classification
Inventory control Inventory control is the term used to describe activities and techniques used to maintain the desired levels of items in inventory Ð these items can be raw materials, work-in-progress, components, or finished products. For more information, refer to Module 1, Section G, Topic 4
Dividing the average inventory level into the annual cost of sales will produce which of the following values? Cycle time Inventory turnover Days of supply Inventory velocity
Inventory turnover Inventory turnover is the number of times that an inventory cycles, or 'turns over,' during the year. A frequently used method to compute inventory turnover is to divide the average inventory level into the annual cost of sales. For more information, refer to Module 1, Section G, Topic 3
In the pursuit of continuous improvement, reducing the annual ordering cost will have which of the following effects on EOQ? It will lower the EOQ amount Annual ordering costs have no relation to EOQ The EOQ amount is unaffected It will raise the EOQ amount
It will lower the EOQ amount Reducing annual ordering costs will lower the EOQ amount, because orders can be made more frequently and average inventory levels are reduced. For more information, refer to Module 1, Section G, Topic 5
A guitar retailer sells four Gibson Les Pauls and a Fender Telecaster in one week. The manager places an order to Gibson for four Les Pauls, and another order to Fender for a single Telecaster. What is the name for this lot-ordering technique? Min-max system Batch ordering Stock-keeping Lot-for-lot (L4L)
Lot-for-lot (L4L) Lot-for-lot (L4L) is a lot-sizing technique that generates planned orders in quantities that equal the net requirements in each period. For more information, refer to Module 1, Section G, Topic 5
Items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations are known as Overhead Indirect spend Maintenance, repair, and operating supplies (MRO) Expense items
Maintenance, repair, and operating supplies (MRO) Maintenance, repair, and operating supplies (MRO) include items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations. For more information, refer to Module 1, Section G, Topic 1
Which of the following goals of cycle counting is a benefit for production? Material value overages are offset by shortages. Material count is accurate by location. Material count overages are offset by shortages. Material count is accurate within a tolerance.
Material count is accurate by location. Cycle counting breaks down counts by item and location and tracks accuracy by location. This reduces downtime due to missing inventory. The other answers refer to disadvantages of a periodic physical inventory. For more information, refer to Module 1, Section G, Topic 7
At a technology manufacturer, a replenishment order is submitted at the end of the day when inventory of a particular tablet drops below 50 units. The replenishment order is always calculated to ensure that inventory is brought back up to 100 units. What is the name for this type of order replenishment system? Min-max system Period order quantity Fixed order quantity Lot-for-lot
Min-max system A min-max system is a type of order point replenishment system where the minimum is the order point, and the maximum is the 'order up to' inventory level. An order is recommended when the sum of the available and on-order inventory is at or below the min. For more information, refer to Module 1, Section G, Topic 5
A key customer service performance indicator for most companies is: Manufacturing variance Overtime On-time schedule performance Purchase price variance
On-time schedule performance On-time schedule performance is a measure (percentage) of meeting the customer's originally negotiated delivery request date. For more information, refer to Module 1, Section G, Topic 1
Upon receiving an order for two products, a lean manufacturer processes one item from one step to the next before beginning the second item. This is an example of: Perpetual inventory system Periodic replenishment Two-bin inventory system One-piece flow
One-piece flow Assuming a lean manufacturer has managed to optimize its setup times and reduce its lot sizes to one (or as close to one as possible), a reorder point system can be implemented. As the lean ideal is an order size of one, this lowers the reorder point. For more information, refer to Module 1, Section G, Topic 6
Variable costs are Operating costs that vary directly with a change of one unit in the production volume. Persistently rising general price levels brought about by rising input costs. Increases in the price of a standardized good/service over a specific period of time. Expenses that do not vary with the production volume.
Operating costs that vary directly with a change of one unit in the production volume. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. For more information, refer to Module 1, Section G, Topic 3
Which of the following costs are related to the clerical work of preparing, releasing, monitoring, and receiving orders, the physical handling of goods, inspections, and setup costs? Total cost. Ordering cost. Carrying cost. Purchase order cost.
Ordering cost. Ordering cost are used in calculating order quantities, the costs that increase as the number of orders placed increases. It includes costs related to the clerical work of preparing, releasing, monitoring, and receiving orders, the physical handling of goods, inspections, and setup costs, as applicable. For more information, refer to Module 1, Section G, Topic 2
An order has been placed and approved for delivery in two months' time. The factory produces the product at a steady rate, meaning days of supply is stable. What lot-sizing technique could be used to achieve appropriate levels of supply in this situation? Time-phased order point Demand planning Period order quantity Min-max system
Period order quantity Period order quantity is a lot-sizing technique under which the lot size is equal to the net requirements for a given number of periods. This method orders enough SKUs to satisfy demand for a particular number of time periods, such as months, weeks, or days. For more information, refer to Module 1, Section G, Topic 5
Which of the following is a method of verifying inventory records that primarily focuses on ensuring that the inventory records accurately represent the value of inventory? Audit Cycle counting Periodic inventory Perpetual inventory
Periodic inventory The main purpose of periodic inventory is to satisfy financial auditors that the inventory records represent the value of the inventory. For more information, refer to Module 1, Section G, Topic 7
In order to maintain real-time inventory records, every transaction can be recorded in this type of document or electronic record: Lot-for-lot Perpetual inventory record SKU Inventory bin
Perpetual inventory record A perpetual inventory record tracks inventory levels at each stock keeping location. When a transaction occurs that either adds or subtracts inventory, the inventory levels in the record are updated immediately. For more information, refer to Module 1, Section G, Topic 6
The term that refers to the relief of inventory and computation of sales data at the time and place of retail purchase, generally through the use of bar coding or magnetic media and equipment is Batch Processing Transaction processing Point of Sale Electronic Data Interchange
Point of Sale Point of Sale data is an integral part to meeting and replenishing demand in a retail supply chain. For more information, refer to Module 1, Section G, Topic 5
The difference between the sales and cost of goods sold for an organization is called Revenue Gross margin Net profit Profit margin
Profit margin Profit margin is the difference between the sales and cost of goods sold for an organization, sometimes expressed as a percentage of sales. For more information, refer to Module 1, Section G, Topic 3
A key performance indicator critical to manufacturing execution and accurately reflecting the company's assets is Record accuracy Order fill rates Shortages Schedule attainment
Record accuracy Record accuracy is a measure of the conformity of recorded values in a bookkeeping system to the actual values. This measure is critically important to production planning and purchasing teams as inaccurate records lead to stock outs and lost production time. For more information, refer to Module 1, Section G, Topic 7
A manager has factored in an additional three days for an order, to protect against fluctuations in lead time. If all processes run smoothly, a work center might be able to complete orders ahead of time. This additional time is called: Efficiency Safety lead time Frozen bucket Planning horizon
Safety lead time A safety lead time is extra time added to a normal lead time, to protect against unexpected fluctuations in lead time. This would allow a product to be completed before its actual due date. For more information, refer to Module 1, Section G, Topic 4
The target costs of an operation, process, or product including direct material, direct labor, and overhead charges is First in, first out (FIFO) Last in, first out (LIFO) Standard cost Average cost
Standard cost Standard costs are the target costs of an operation, process, or product including direct material, direct labor, and overhead charges. For more information, refer to Module 1, Section G, Topic 3
On the above Order Point System graph, the downward slope will differ when demand is higher or lower than expected. If demand were to suddenly increase, what would you expect to happen to the slope? Plateau Steeper drop Remain the same Shallower drop
Steeper drop If demand is higher than the rate shown, the slope will fall more quickly, while demand that is slower will result in a slope falling more gradually. Safety stock is held in preparation for higher-than-average demand: if the inventory falls more quickly than the average, a stockout will not occur until the safety stock is depleted. For more information, refer to Module 1, Section G, Topic 6
Decoupling points are The locations in the product structure or distribution network where inventory is placed to create independence between processes or entities. Cross docks used to transfer goods from one trailer to another while in transit to their final destination.. The locations in a distribution network where demand is not passed up the supply chain. Broken links with a supply chain where demand is lost.
The locations in the product structure or distribution network where inventory is placed to create independence between processes or entities. Decoupling points are the locations in the product structure or distribution network where inventory is placed to create independence between processes or entities. For more information, refer to Module 1, Section G, Topic 1
Assets can be defined as The debts or obligations owed by a company to creditors. The resources owned by a company, whether tangible (cash, inventories) or intangible (patent, goodwill). The costs related to problems found after the product reaches the customer. Those items of cost related to the activities associated with the movement and storage of finished products.
The resources owned by a company, whether tangible (cash, inventories) or intangible (patent, goodwill). Assets are property owned by a person or company, regarded as having value and available to meet debts. For more information, refer to Module 1, Section G, Topic 3
Service parts can be defined as Those items stored in maintenance to repair manufacturing equipment on the shop floor. Those modules, components, and elements that are planned to be used without modification to replace an original part. Expensed items used in manufacturing but are included in the product structure of the product. Are not planned for and are pulled from manufacturing stock when required.
Those modules, components, and elements that are planned to be used without modification to replace an original part. Service parts are those modules, components, and elements that are planned to be used without modification to replace an original part. For more information, refer to Module 1, Section G, Topic 1
At a toy manufacturer, one work center is assigned the task of attaching an action figure's head. Two lots of the figure's head are provided. As soon as one lot is exhausted, a replenishment order is issued. The worker continues to work on assembly using the second lot while the replenishment lot is processed. What is the name for this inventory system? Two-bin inventory system Lot-for-lot system Hybrid system Min-max system
Two-bin inventory system Two-bin inventory is a fixed-order system in which inventory is carried in two bins. A replenishment quantity is ordered after the first is exhausted. During the replenishment time, material in the remaining bin is used. For more information, refer to Module 1, Section G, Topic 6
An inventory manager needs to check how many screws and washers are in stock. What is a simple, low-tech inventory control system that could be used in this instance? Fixed reorder cycle system Visual review system Perpetual replenishment system Periodic replenishment system
Visual review system A visual review system is when the inventory reordering is based on actually looking at the amount of inventory at hand. This is related to two-bin systems, in which when the first is seen to be depleted, an order will be placed. For more information, refer to Module 1, Section G, Topic 6
If a quantity discount is taken on a purchase order, the typical effects are: carrying cost increase and total cost increases carrying cost decreases and total cost decreases carrying cost decreases and total cost increases carrying cost increases and total cost decreases
carrying cost increases and total cost decreases The two key costs of inventory are carrying costs and order costs. A larger purchase order receipt will increase carrying costs but decrease ordering costs and, therefore, decrease total cost. For more information, refer to Module 1, Section G, Topic 2
