BSCM - 6 - Aggregate Inventory Management

Question 1

Inventory of material that has not undergone processing at a facility.

Answer 1

RAW MATERIAL

Question 2

A financial statement showing the net income for a business over a given period of time.

Answer 2

INCOME STATEMENT

Question 3

Items used in support of general operation and maintenance and consumables used in the manufacturing process & supporting operations.

Answer 3

MRO

Question 4

The number of times that an inventory cycles during the year.

Answer 4

INVENTORY TURNS

Question 5

Goods in various stages of completion throughout the plant.

Answer 5

WORK IN PROGRESS

Question 6

Inventory that results whenever quantity price discounts,shipping costs, setup costs, or similar considerations make it more economical to purchase or produce in larger lots than are needed for immediate purposes.

Answer 6

LOT SIZE INVENTORIES

Question 7

An accounting classification useful for determining amount of direct materials, direct labor, and allocated overhead associated with the products sold during a given period of time.

Answer 7

COGS (COST OF GOODS SOLD)

Question 8

A lack of materials, components, or finished goods that are needed.

Answer 8

STOCK OUT

Question 9

A form of inventory build up to buffer against some event that may not happen (such as price increases, labor strikes, etc.)

Answer 9

HEDGE INVENTORIES

Question 10

Inventory that is in transit between manufacturing and stocking locations.

Answer 10

TRANSPORTATION INVENTORY

Question 11

Inventory located in warehouses and in transit between warehouses and the customer.

Answer 11

DISTRIBUTION INVENTORIES

Question 12

A financial statement showing the assets, liabilities, and owner’s equity for a company at a given point in time.

Answer 12

BALANCE SHEET

Question 13

Those items on which all manufacturing operations, including final test have been completed.

Answer 13

FINISHED GOODS

Question 14

Inventory that is carried as a cushion to protect against forecast error.

Answer 14

FLUCTUATION INVENTORIES

Question 15

Assets = Liabilities + Owner’s Equity

Answer 15

ACCOUNTING EQUATION

Question 16

The cost of holding inventory, usually defined as a percentage of the dollar value of the inventory per unit of time.

Answer 16

CARRYING COST

Question 17

Additional inventory above basic pipeline stock to cover projected tends of increasing sales, planned sales, planned sales promotions, seasonal fluctuations, plant shutdowns, and vacations.

Answer 17

ANTICIPATION INVENTORIES

Question 18

What are the objectives of Aggregate Inventory Management?

Answer 18

• Support Business Strategy & Operations
• Ensure that inventory practices support financial objectives
• Balance customer service, operations efficiency, and inventory investment cost objectives

Question 19

Those stocks or items used to support production, supporting activities, and customer service.

Answer 19

INVENTORY

Question 20

What class of inventory is associated with PRODUCTION ACTIVITIES?

Answer 20

RAW MATERIALS & WIP

Question 21

What class of inventory is associated with OPERATIONS ACTIVITIES?

Answer 21

MAINTENANCE, REPAIR, & OPERATING SUPPLIES

Question 22

What class of inventory is associated with CUSTOMER SERVICE ACTIVITIES?

Answer 22

FINISHED GOODS, REPAIR PARTS, AND SPARES

Question 23

What are the reasons for carrying inventory?

Answer 23

• The only good reason to carry inventory beyond current needs is if it costs less than NOT to carry it.
• Inventory enables the company to operate with different production rates and batch sizes throughout the supply, production, and distribution system.

Question 24

What are the decision rules that management must establish about individual inventory items?

Answer 24

• Which individual items are most important?
• How to control inventory
• How much to order at one time?
• When to place an order.

Question 25

What are the functions of inventory?

Answer 25

• ANTICIPATION INVENTORY
• SAFETY STOCK / FLUCTUATION INVENTORY
• LOT-SIZE INVENTORY
• TRANSPORTATION INVENTORY
• HEDGE INVENTORY
• BUFFER

Question 26

What are the three main objectives of inventory?

Answer 26

1. Best Customer Service
2. Low-Cost Plant Operations
3. Minimum Inventory Investment

Question 27

What are the five categories of cost associated with inventory and management decisions?

Answer 27

1. Item Costs
2. Carrying Costs
3. Ordering Costs
4. Stockout Costs
5. Capacity-Related Costs

Question 28

How are item costs different for Purchased and Manufactured items?

Answer 28

Purchased includes the costs of the purchase price, plus transportation, customs duties, and insurance. The total of all these is called LANDED COST.

Manufactured Item costs include direct material, direct labor, and factory overhead.

Question 29

LANDED COST

Answer 29

The total of all costs associated with purchased items: includes purchase price, transportation, customs duties, and insurance.

Question 30

All costs attributable to the volume of inventory on hand in a designated time period, such as annual, monthly, etc. These costs can be broken down into three categories:

• CAPITAL COSTS
• STORAGE COSTS
• RISK COSTS

Answer 30

CARRYING COSTS

Question 31

Money invested in inventory (cost of all purchased and WIP items) is capital that is not available to the company. The opportunity cost of that capital if invested at the prevailing interest rate or invested in other opportunities is considered a carrying cost. The higher the inventory investment, the higher the _________________.

Answer 31

CAPITAL COSTS

Question 32

Include costs of utilities, workers, buildings, equipment maintenance, and security.

Answer 32

STORAGE COSTS

Question 33

Include obsolescence, damage, pilferage, deterioration, insurance.

Answer 33

RISK COSTS

Question 34

What are the four categories of ordering costs?

Answer 34

• Production Control Costs (Factory)
• Setup and Teardown Costs (Factory)
• Lost Capacity Cost (Factory)
• Purchasing Costs (Purchase Order)