Business Processes & Risks

Question 1

One purpose of inventory control is to

Answer 1

Determine the optimal level of inventory necessary to minimize costs.

Question 2

Include rent, insurance, taxes, security, depreciation, and opportunity cost.

Answer 2

The carrying costs of inventory

Question 3

Are the fixed costs of placing an order with a vendor and receiving the goods, independent of the number of units ordered.

Answer 3

Ordering costs

Question 4

The basic formula of the economic order quantity (EOQ) model is

Answer 4

EOQ = Square root of (2aD divided by k)

if
a = variable cost per order (or production setup)
D = Periodic demand in units
k = unit periodic carrying cost

Question 5

The limitations of the EOQ model are its restrictive assumptions, which are

Answer 5

1) The three variables in the formula remain constant throughout the period.
2) Full replenishment occurs instantly when the last items is used, stock-out costs are zero, and no safety stock is held.

Question 6

Divides inventory items into three groups.

Answer 6

The ABC system

Question 7

Consists of high-monetary-value items, which account for a small portion (perhaps 10%) of the total inventory usage.

Answer 7

Group A

Question 8

Consists of medium-monetary-value items, which may account for perhaps 20% of the total inventory items.

Answer 8

Group B

Question 9

Consists of low-monetary-value items, which account for the remaining 70% f sales or usage.

Answer 9

Group C

Question 10

The ABC system permits managerial control over inventory to be exercised in

Answer 10

The most cost-effective manner by putting more attention on the groups with higher value items.

Question 11

Limits output to the amount required (the demand) by the next operation in the production process. Is a pull system.

Answer 11

Just-in-time (JIT) model

Question 12

Just-in-time has the following qualities.

Answer 12

1) Reductions in inventory result in less money invested in idle assets; reduction of storage space requirements; and lower inventory taxes, pilferage, and obsolescence risks.
2) Reduces carrying costs while increasing the risk of stock-out costs.
3) The lower inventory in a JIT system eliminates the need for some internal controls.
4) The dependability of suppliers is crucial.

Question 13

Is an integrated computer-based system designed to plan and control materials used in production.

Answer 13

Materials requirements planning (MRP)

Question 14

The MRP system:

Answer 14

Consults the bill of materials (BOM), a record of which (and how many) subassemblies go in to the finished product. The system then generates a complete list of every part and component needed.

Question 15

Expands the scope of MRP to integrate all facets of a manufacturing business, including production, sales, inventories, schedules, and cash flows.

Answer 15

Manufacturing resource planning (MRP-II)

Question 16

System involves

1) Designing products using a computer-aided design (CAD),
2) Testing the design using computer-aided engineering (CAE),
3) Manufacturing products using computer-aided manufacturing (CAM), and
4) Integrating all components with a computerized information system

Answer 16

Computer-integrated manufacturing (CIM)

Question 17

Is the communication of electronic documents directly from a computer in one organization to a computer in another organization.

Answer 17

Electronic data interchange (EDI)

Question 18

Advantages of Electronic data interchange (EDI) are

Answer 18

1) Reduction of clerical errors,
2) Speed of transactions, and
3) Elimination of repetitive clerical tasks.
4) Eliminates document preparation, processing, and mailing costs

Question 19

Risks of EDI include:

Answer 19

1) Security of information and

2) Loss of data

Question 20

Are private mailbox-type services in which the sender’s and receiver’s computers are never directly connected to each other.

Answer 20

Third-party value-added networks (VANs)

Question 21

Because of the third-party buffer, the VAN users are:

Answer 21

Not required to conform to the same standards, conventions, and protocols.

Question 22

Is a service provided by financial institutions worldwide that is based on EDI technology.

Answer 22

Electronic funds transfer (EFT)

Question 23

Electronic funds transfer (EFT) consist of:

Answer 23

1) EFT transaction costs are lower than for manual systems.

2) the most important application of EFT is check collection.

Question 24

Is the purchase and sale of goods and services by electronic means.

Answer 24

Electronic commerce (e-commerce)

Question 25

Is a more comprehensive term defined as all methods of conducting business electronically.

Answer 25

E-business

Question 26

Security issues for e-commerce include:

Answer 26

1) Data authentication

2) Information confidentiality and integrity

Question 27

Responses to e-commerce security issues include:

Answer 27

1) Encryption,
2) Compliance with legal requirements, and
3) Documentation of trading agreements.

Question 28

Interacts with product life cycles and the overall economic cycle.

Answer 28

Business Development Life Cycle

Question 29

Business Development Life Cycle has four stages, which are:

Answer 29

1) Initial stage (formative stage)
2) Rapid growth stage
3) Product maturity stage
4) Decline stage

Question 30

Is an independent non-governmental membership organization and the world’s largest developer of voluntary international standards.

Answer 30

The International Organization for Standardization (ISO)

Question 31

Provides guidance for establishing and maintaining a quality management system (QMS)

Answer 31

ISO 9000 family

Question 32

Contains a set of environmental standards.

Answer 32

ISO 14000

Question 33

Is the transfer of some of an organization’s business processes to an outside provider to improve service quality while achieving cost savings, operating effectiveness, or operating efficiency.

Answer 33

Business process outsourcing

Question 34

Is responsible for ensuring that an adequate system of internal control exists over processes performed by an external service provider.

Answer 34

Management

Question 35

Advantages of outsourcing include:

Answer 35

1) Access to expertise,
2) Superior service quality,
3) Avoidance of changes in the organization’s infrastructure, and
4) Cost predictability

Question 36

The potential disadvantages of outsourcing include:

Answer 36

1) Inflexibility of the relationship,
2) Loss of core knowledge, and
3) vulnerability of important information.