Chapter 17 Cash, Receivables, and Inventory Management

26) Which of the following is NOT a category of inventory?

A) raw materials

B) work-in-process

C) purchases

D) finished goods

27) In the EOQ model, carrying costs of inventory include

A) the required rate of return on inventory.

B) wages for warehouse workers.

C) costs associated with inventory shrinkage.

D) B and C.

E) all of the above.

28) Inflation affects the EOQ model in all of the following ways EXCEPT

A) changing the investment in accounts receivable.

B) encourages anticipatory buying.

C) increased carrying costs.

D) encourages buying early to avoid price increases.

29) Which of the following is NOT an underlying assumption of the EOQ?

A) uniform demand

B) constant unit price

C) variable carrying cost

D) instantaneous delivery

30) Mountain Snow Sports, Inc. is trying to determine the optimal order quantity for snow boards for the next twelve months. Annual sales are expected to be 1,000,000 units at a retail price of $400 each. The cost of carrying snow boards is $80 per year. Studies show that it costs Mountain Snow $250 to prepare and receive an order. What is the EOQ?

A) 2,750

B) 2,500

C) 2,000

D) 1,850

31) Fiesta Taco Company purchases 30,000 boxes of ground beef each year. It costs $50 to place each order and $10.00 per year for each box held as inventory.

a. What is the average inventory held during the year?

b. What is the economic order quantity for the ground beef?

c. How many orders will be made each year?

32) Manfred Manufacturing is involved in the production of machine parts. The company uses 600,000 pounds of steel annually. The current purchasing cost for steel is $3.20 per pound. The carrying cost for inventory is 10 percent of the purchase price. The cost of ordering steel is $800 per order. The company has decided to maintain a safety stock of 15,000 pounds. The delivery time per order is 6 days. The company works 365 days a year.

a. Determine the optimal EOQ.

b. How many orders will be placed annually?

c. What is the average inventory?

d. What is the inventory order point? (That is, at what level of inventory should a new order be placed?)

e. What is the company's total inventory costs for the year?

33) A flower shop is trying to determine the optimal order quantity of the wicker baskets that it places many of its arrangements in. The store thinks it will sell 2000 of these baskets over the next year. The baskets cost the shop $2.00 each. The carrying costs of the baskets is $0.15 each per year. It costs the shop $8.00 to order.

a. What is the economic order quantity?

b. What is the total cost for ordering the baskets once a year? Four times a year?

34) A local lamp store expects to sell 2000 lamps in the coming year. It costs the store $1.00 in carrying costs for each lamp and $10.00 for each order placed.

a. What is the economic order quantity for the lamps?

b. How many orders will be placed each year?

c. If the store wants a one-week safety stock and it takes one week to receive an order after it has been placed, what should the inventory level be when a new order is placed? Assume a 50-week year.

35) A textile manufacturer has cloth that has a $14 per yard carrying cost per year. This cloth is used at a rate of 25,000 yards per year, and ordering costs are $10 per order.

a. What is the economic order quantity for this cloth?

b. What are the annual inventory costs for this firm if it orders in this quantity?

36) The economic order quantity (EOQ) model is well accepted. However, there are weaknesses associated with several of its assumptions. What are these weaknesses?