Module 5 -Inventory

Question 1

Using the information provided below, what was the work in process (WIP) at the end of period 4 if it was 35 prior to period 1?

Answer 1

Opening Balance = 35 Units (prior to P1), plus actual input 1800 Units (actual for P1 to P4), l`ess actual output 1760 units (P1 to P4) = 75 Units

Question 2

Which of the following activities in the physical distribution system creates time value by placing the product close to the customer?

Materials handling

Distribution inventories

Order processing and communication

Warehousing

Answer 2

Distribution inventory includes all finished goods inventory at any point in the distribution system. Distribution inventories create time value by placing the product close to the customer.

Question 3

What are service parts?

Items that are not planned for and are pulled from manufacturing stock when required

Items stored in maintenance to repair manufacturing equipment on the shop floor

Modules, components, and elements that are planned to be used without modification to replace an original part

Expensed items that are used in manufacturing but are included in the structure of the product

Answer 3

Service parts are modules, components, and elements that are planned to be used without modification to replace an original part.

Question 4

An organization is looking to meet its sustainability goals but has budget constraints. Which is the best sustainability option for this organization?

Answers

Change products to use only recyclable plastics.

Install solar panels on the roofs of all facility buildings.

Match inventory turnover with the product life cycle.

Minimize total inventory investment by ordering efficiently.

Answer 4

A lower inventory investment aligns with organizational sustainability objectives by avoiding excess inventory that may otherwise enter the waste stream if it becomes obsolete.

Question 5

Which is a positive benefit that can be realized by implementing a new raw material ordering system that reduces the total lead time of in-transit inventory by a full day?

Answers

The plant should experience lower overall setup costs and produce higher numbers of units overall.

Anticipation inventory levels at the plant can be reduced.

Fewer raw material transportation vehicles will need to be used.

Raw material inventory levels held at the plant for decoupling purposes can be reduced.

Answer 5

Inventory can decouple supply from demand at the supply chain level by, for example, allowing raw materials to be pulled from inventory rather than relying on order lead times or maintaining inventories of finished goods rather than producing based on actual orders. If the lead time for raw materials can be reduced by a full day, up to one day’s worth of raw materials inventory held for decoupling purposes can be eliminated with no impact on production.

Question 6

What type of inventory is held due to the unpredictable nature of supply, demand, or lead time?

Answers

Demand inventory

Hedge inventory

Fluctuation inventory

Anticipation inventory

Answer 6

Fluctuation inventory, also known as inventory buffer, is carried as a cushion to protect against forecast error.

Question 7

Under the theory of constraints, what signals the start of the purchasing process?

Answers

Kanban

Planned order release

Purchase requisition

Change in buffer inventory

Answer 7

change in buffer inventory. Production inventory shortages cause a “hole” in the constraints buffer and alert the buffer manager to release a purchase order for the short materials.

Question 8

A make-to-stock organization sells premium clothing that comes in a wide variety of sizes. What sort of inventory policy would be best for this organization?

Answers

Ordering far in advance

Placement closest to point of customer demand

Risk pooling

Postponement

Answer 8

Rick pooling. Products that have many different SKUs, such as sizes of shirts, will generate large inventories unless inventory is centralized. Risk pooling describes a method of centralizing inventory.

Question 9

Products that are close to their expiration date and cannot be sold at full price are known as:

Answers

inactive inventory.

distressed goods.

obsolete inventory.

scrap.

Answer 9

Distressed goods are products that are damaged or close to their expiration date and cannot be sold at full price.

Question 10

Which inventory transaction type is most likely found in an environment that produces to a forecast as opposed to an environment that produces to a customer order?

Answers

Service parts

Raw materials

Work in process

Finished goods

Answer 10

finished goods. Make-to-stock environments must receive, issue, and adjust finished goods inventory that has been produced mainly to a forecast.

Question 11

Which functional role is most likely to oppose increasing multiple work-in-process (WIP) buffer sizes after a series of missed customer orders?

Answers

Finance

Marketing

Operations

No one

Answer 11

Finance. The goals of finance are to increase profit and cash flow and reduce investment. Increasing WIP buffer sizes will likely increase inventory investment.

Question 12

A company wanting to maintain a high level of customer service at the lowest inventory carrying cost should take which of the following actions?

Answers

Split safety stock between central and field warehouses.

Place safety stock in a central warehouse.

Use faster modes of transportation.

Place safety stock in field warehouses.

Answer 12

By placing safety stock in a central warehouse, safety inventory can be reduced by aggregating demand.

Question 13

Which are components of product cost?

Answer 13

Overhead, labor, and material costs

Question 14

Maintaining high stock levels of products for sale conflicts with which of the following objectives?

Answers

Best customer service

Lowest distribution costs

Lowest days of supply

Lowest production costs

Answer 14

lowest days of supply. Providing high levels of inventory to maximize customer order fill rates conflicts with achieving low levels of inventory.

Question 15

An organization uses absorption costing and assigns overhead to products based on their direct materials costs. In quarter 1, direct materials cost for one family of products was $2,000,000 in total and fixed costs were $400,000. In quarter 2, fixed costs for the family of products remained the same but the materials manager reduced direct materials cost by 20% without altering total unit production. In the first quarter, the total direct materials cost was $4,000,000 for the family of products. In the second quarter, it was $3,600,000. Unit sales in both quarters for the family of products was 10,000 units. Which of the following best summarizes the impact of reducing these materials costs?

Answers

The change increases the fixed overhead rate and the total unit cost.

The change decreases the fixed overhead rate and the total unit cost.

The change increases the fixed overhead rate, but the total unit cost is reduced.

The change decreases the fixed overhead rate, but the total unit cost is increased.

Answer 15

The change increases the fixed overhead rate, but the total unit cost is reduced.

In absorption costing, fixed costs are usually allocated to units of output on the basis of direct labor hours, machine hours, or materials costs. In this case, the organization uses direct materials costs. The calculations are as follows:

The fixed overhead rate is calculated by dividing the fixed overhead by the direct materials costs. In quarter 1, this was $400,000/$2,000,000 = 0.20. Reducing the direct materials costs by 20% would be a reduction of $400,000, resulting in $1,600,000 in direct materials costs.
The quarter 2 fixed overhead rate is $400,000/$1,600,000 = 0.25.
In quarter 1: ($4,000,000 x 0.2)/10,000 units = $80 unit fixed overhead. Unit direct cost is $4,000,000/10,000 = $400. The quarter 1 total is $480 per unit.
In quarter 2: ($3,600,000 x 0.25)/10,000 = $90 unit fixed overhead. Unit direct cost is $3,600,000/10,000 = $360 per unit. The quarter 2 total is $450 per unit.
Therefore, while the material cost reduction increased the fixed overhead rate (and the unit fixed overhead amount), the total unit cost went down.

Question 16

Maintaining physical control of point-of-use is accomplished by:

Answers

receipt and issue transactions.

procedures.

limited access.

cycle counting.

Answer 16

Procedures limit the input and control the output based on demand.

Question 17

Which of the following most likely indicates that there are two packing slip errors?

Answers

The unit of measure does not match the inventory unit of measure.

The quantity does not match the actual quantity received.

The unit price does not match the standard cost on file.

The part number does not match the actual material received.

Answer 17

The incorrect part is received and the correct part is not received, constituting two errors.

Question 18

Which would be likely to result in an inaccurate count of inventory?

Answers

Moving inventory to a different work center without recording the movement

Counting category C inventory more often than required

Undertaking rework to correct manufacturing defects in a product

Authorized overtime work at a workstation that is a bottleneck in the manufacturing process

Answer 18

Inventory count inaccuracy can stem from several causes, including moving inventory and failing to record the movement. Over-counting inventory in an ABC classification may lead to wasted time but should not result in inaccurate inventory counts. As long as overtime work and rework are authorized and accounted for, they shouldn’t result in inventory inaccuracy.

Question 19

Which inventory audit technique relies on a dedicated, trained staff who counts small amounts of inventory every workday?

Answers

Periodic inventory

Physical inventory

Cycle counting

ABC segmentation

Answer 19

Cycle counting is a continuous inventory audit practice that relies on dedicated, trained staff whose job is to count small amounts of inventory each workday. Cycle counting is a form of physical inventory along with periodic inventory, which does not take place on a daily basis. ABC item segmentation is often used when cycle counting but is not the actual name of the inventory audit technique.

Question 20

A part has an effectivity date that goes into force tomorrow. What will change at that time?

Answers

Part ID numbers at the batch/lot and instance levels only

Engineering drawings but not part ID number

Part ID number at the class level

Part ID number at the instance level only

Answer 20

At the class level, a product or part ID code identifies the unique product or part class. An effectivity date is the date when a new set of engineering drawings and documents come into effect. At that time, the new part will have a new part ID number at the class level. The instance level is a unique serialized ID to identify a unique instance of a product.

Question 21

Which managed inventory strategy would best suit a lean manufacturer that is unable to provide consistent order sizes due to fluctuations in demand for the various products it produces?

Answer 21

Continuous replenishment uses actual sales or warehouse shipments without stockouts, resulting in lower associated costs and improved inventory turnover. It would be best suited for the manufacturer due to the manufacturer’s inability to provide consistent order information and its preference to reduce waste, which would include extra inventory storage in the form of consignment or VMI.