Chapter 12

Question 1

inventory management

Answer 1

the objective of inventory management is to strike a balance between inventory investment and customer service

Question 2

functions of inventory (4)

Answer 2

1. separate various parts of the production process
2. to separate the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers
3. to take advantage of quantity discounts
4. to protect against inflation

Question 3

types of inventory

Answer 3

raw material, work-in-process, maintenance/repair, finished goods

Question 4

cycle counting advantages

Answer 4

1. eliminates shutdowns and interruptions
2. eliminates annual inventory adjustment
3. trained personnel audit inventory accuracy
4. allows causes of errors to be identified and corrected
5. maintains accurate inventory records

Question 5

number of items counted daily formula

Answer 5

of items counted/ day = quantity / n working days

Question 6

independent demand:

Answer 6

demand for item is independent of the demand for any other item in inventory

Question 7

dependent demand:

Answer 7

demand for item is dependent upon the demand for some other item in the inventory

Question 8

holding costs

Answer 8

the costs of holding inventory over time

Question 9

ordering costs

Answer 9

the costs of placing an order and receiving goods

Question 10

setup costs

Answer 10

cost to prepare a machine or process for manufacturing an order

Question 11

types of costs (3)

Answer 11

holding, ordering, setup