An entity sells 1, 500 units of a particular item each year and orders the items in equal quantities of 500 units at a price of US $5 per unit. No safety stocks are held. If the entity has a cost of capital of 1 2%, its annual opportunity cost of carrying inventory is
Answer(s): A
The annual opportunity cost of carrying inventory equals the average inventory level times the cost per unit of inventory times the cost of capital. The average inventory level is the order quantity divided by 2. Thus, the annual opportunity cost of carrying inventory is US $150 [(500 units - 2) x $5 x .12].
Which must be part of any risk model involving inventory valuation?
Answer(s): C
The amount of inventor} loss through shrinkage directly affects inventory valuation_ Inventory. shrinkage must be considered in risk models involving inventory valuation.
A perpetual inventory system uses a minimum quantity on hand to initiate purchase ordering procedures for restocking. In reviewing the appropriateness of the minimum quantity level established by the stores department, the internal auditor is least likely to consider
The basic economic order quantity EOQ) model is based on the following variables: demand, variable cost per purchase order, and variable unit carrying cost. Thus, minimum stocking levels do not affect the EOQ.
An organization must manage its flows of raw materials, components, finished goods, services, or information through intermediaries to ultimate consumers. These flows may occur across the functions in an organization's
Answer(s): B
The supply chain consists of flows from sources of a) raw materials, b) components, c) finished goods, d) services, or e) information through intermediaries to ultimate consumers. These flows and the related activities may occur across the functions in an organization's value chain R&D, design, production, marketing, distribution, and customer service). These flours and the related activities also may occur across separate organizations.
The bullwhip, or whiplash, effect on inventories begins when retailers face uncertain demand from consumers caused by randomness in buying habits. It can be avoided by
Answer(s): D
Sharing information about sales, inventory, pricing, advertising campaigns, and sales forecasts by all functions and organizations in the supply chain moderates demand uncertainty for all parties. The desired results are a) minimization of inventories held by suppliers, manufacturers, and retailers; b) avoidance of stackouts; c) fewer rush orders; and d) production as needed by retailers.
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