Business Quiz: Inventory Management

2.

What is the name of materials used in the production process that do not become part of the product?

Raw materials
Work in process
Finished goods
Maintenance, repair, and operating supplies

Correct Answer

A. Maintenance, repair, and operating supplies

Explanation

Maintenance, repair, and operating supplies are materials used in the production process that do not become part of the final product. These supplies are used for the maintenance and repair of equipment, as well as for day-to-day operations of the production facility. Unlike raw materials, work in process, and finished goods, maintenance, repair, and operating supplies are not transformed into the final product but are necessary for the smooth functioning of the production process.

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3.

What is the name given to inventories of items that are purchased or manufactured in quantities greater than needed immediately?

Fluctuation inventory
Lot size inventory
Transportation inventory
Scheduled receipts

Correct Answer

A. Lot size inventory

Explanation

Lot size inventory refers to inventories of items that are purchased or manufactured in quantities greater than needed immediately. This type of inventory is commonly used to take advantage of economies of scale in production or purchasing, where ordering or producing in larger quantities can result in lower costs per unit. By ordering or producing in larger batches, companies can reduce setup or ordering costs, minimize production downtime, and optimize transportation and storage costs. Lot size inventory helps to balance the trade-off between carrying costs and ordering or setup costs, ultimately improving efficiency and cost-effectiveness in inventory management.

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4.

Which of the following comapny objectives are in conflict?

Maximum customer service and low-cost plant operation
Low-cost plant operation and cash flow
Maximum inventory investment and customer service
Cash flow and profitability

Correct Answer

A. Maximum customer service and low-cost plant operation

Explanation

The objective of maximum customer service focuses on providing the best possible service to customers, which may involve additional costs such as hiring more staff or using premium materials. On the other hand, the objective of low-cost plant operation aims to minimize expenses and maximize efficiency, which may involve cutting down on certain services or using cheaper materials. These two objectives are in conflict because maximizing customer service may require higher costs, while low-cost plant operation aims to minimize expenses.

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5.

Which of the following costs will increase if order quantity is increased?

Annual cost of carrying inventory
Cost of ordering
Cost of manufacturing operations
Cost of customer service

Correct Answer

A. Annual cost of carrying inventory

Explanation

If the order quantity is increased, the annual cost of carrying inventory will also increase. This is because carrying inventory for a longer period of time requires additional storage space and maintenance, which in turn leads to higher costs. Additionally, an increased order quantity may result in a higher risk of obsolescence or damage to the inventory, further increasing the annual carrying cost.

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6.

Which of the following are costs of carrying inventory?

Capital costs and production control costs
Capital costs and storage costs
Production control costs and purchase costs
Storage costs and purchasing costs

Correct Answer

A. Capital costs and storage costs

Explanation

The costs of carrying inventory include capital costs and storage costs. Capital costs refer to the expenses incurred for financing the inventory, such as interest on loans or the opportunity cost of capital tied up in inventory. Storage costs, on the other hand, encompass the expenses related to storing and maintaining inventory, such as rent, utilities, insurance, and security. Both capital costs and storage costs are essential components of the total cost of carrying inventory.

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7.

Which of the following are considered order costs?

Production control costs
Capital costs
Risk costs
Obsolescence costs

Correct Answer

A. Production control costs

Explanation

Production control costs are considered order costs because they are directly related to the process of managing and controlling the production of goods or services. These costs include expenses associated with planning, scheduling, and coordinating production activities, such as labor costs for production supervisors, software or systems for production planning, and costs of implementing quality control measures. These costs are incurred to ensure that production orders are executed efficiently and effectively, making them an essential part of the overall cost of fulfilling customer orders.

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8.

Which of the folloiwng equations is correct?

Assets = Liabilities - Owners' Equity
Income = Revenue - Liabilities
Owners' Equity = Assets - Liabilities
Revenue = Cost of Goods Sold - General and Administrative Expenses

Correct Answer

A. Owners' Equity = Assets - Liabilities

Explanation

This equation is correct because it represents the fundamental accounting equation, which states that the owners' equity is equal to the assets minus the liabilities. This equation shows the relationship between what the company owns (assets) and what it owes (liabilities), and the remaining value is the owners' equity, which represents the net worth of the business.

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9.

If the annual cost of goods sold is $10 million and the average inventory is $2.5 million, what is the turns ratio?

$7.5 million
.25
2.5
4

Correct Answer

A. 4

Explanation

The turns ratio is calculated by dividing the cost of goods sold by the average inventory. In this case, the cost of goods sold is $10 million and the average inventory is $2.5 million. Therefore, the turns ratio is 4, as $10 million divided by $2.5 million equals 4.

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10.

Which of the following costs is relevant to inventory management decisions?

Run costs
Storage costs
Marketing costs
New product development costs

Correct Answer

A. Storage costs

Explanation

Storage costs are relevant to inventory management decisions because they directly impact the overall cost of holding inventory. These costs include expenses such as rent, utilities, insurance, and labor associated with storing and maintaining inventory. By considering storage costs, businesses can make informed decisions about the optimal level of inventory to hold, balancing the cost of holding excess inventory against the risk of stockouts. Additionally, storage costs are essential for determining the economic order quantity (EOQ) and setting appropriate inventory levels to minimize costs and maximize efficiency.

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Business Quiz: Inventory Management

Which of the following statements is most accurate about inventory management?

Quiz Preview

What is the name of materials used in the production process that do not become part of the product?

What is the name given to inventories of items that are purchased or manufactured in quantities greater than needed immediately?

Which of the following comapny objectives are in conflict?

Which of the following costs will increase if order quantity is increased?

Which of the following are costs of carrying inventory?

Which of the following are considered order costs?

Which of the folloiwng equations is correct?

If the annual cost of goods sold is $10 million and the average inventory is $2.5 million, what is the turns ratio?

Which of the following costs is relevant to inventory management decisions?