B2-M4

Question 1

Reorder point

Answer 1

=stock stock+(lead time * sales during lead time)

Question 2

Economic Order Quantity

Answer 2

• minimizes total ordering (cost of ordering additional inventory) and carrying costs (cost of holding inventory)
• assumes demand is known and constant through out yr

Question 3

Annual cost of quick payment discount

cost of not taking discount

Answer 3

= (360[pay period-discount period]) (Discount %/ [Discount/ 100-Discount %])
-effective annual cost is high when discount is foregone

Question 4

Trade credit (accounts payable)

Answer 4

-largest source of ST credit for small firms

Question 5

Drafts

Answer 5

• paying by check

- delays payment due to float period

Question 6

Factors affecting discount policy:

Answer 6

-high cost associated w/ customer not taking the discount
-decision to pay early depends on:
no cash on hand, preserve cash for other investments, potential to negotiate greater terms

Question 7

Optimal Vendor Payment Schedule

Answer 7

• balance btwn conserving cash and ensuring vendors are paid in a timely manner
• if regular or large volume buyer, may negotiate better terms
• setting up automatic transfers allows companies to conserve cash longer and still pay on time

Question 8

Optimal level of Inventory

Answer 8

• time required to receive inventory
• cost per unit of inventory
• cost of placing an order

Question 9

Just in Time method

Answer 9

developed to reduce the lag time between inventory arrival and use

Question 10

Materials requirement planning

Answer 10

method of determining inventory requirements when a given # of units is needed
-used to create precise schedules

Question 11

Kanban inventory control

Answer 11

prevents oversupply or interruption of the entire manufacturing process resulting from the lack of a component