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Exam 19: Inventory Cost Management Strategies

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Question 1

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Answer the following question(s) using the information below: Sandrington Ltd.operates a retail bicycle shop.Wheel covers are popular with customers.Sandrington purchases these covers for $48 per pair, and expects to sell 5,000 pairs per year.Ordering costs are estimated at $180 per order and relevant insurance handling etc.costs are estimated at $3.60 per month.The company has established a 14% annual return on investment. -The EOQ model is designed to emphasize the tradeoff between which of the following factors?

A) carrying costs and ordering costs
B) purchasing costs and carrying costs
C) stockout costs and carrying costs
D) purchasing costs and ordering costs
E) stockout costs and ordering costs

F) A) and C)
G) All of the above

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Question 2

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Answer the following questions using the information below: Acme Inc.manufactures air compressors.For July there were no beginning inventories of direct materials, and no beginning or ending work-in-process.Only one indirect manufacturing cost category is currently in use, "Conversion Costs." Journal entries are recorded when materials are purchased and when units are transferred to finished goods inventory.Acme Inc.uses backflush costing.Variances are written off against Cost of Goods Sold when units are transferred to finished goods inventory.The following data pertains to July: -Which of the following journal entries properly reflects Acme's conversion costs allocated including the disposition of the variance?

A)
B)
C)
D)
E)

F) A) and B)
G) B) and C)

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Question 3

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Answer the following questions using the information below: The following information applies to Labs Plus, which supplies microscopes to laboratories throughout the country.Labs Plus purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation. -What are the total annual relevant costs at Labs Plus?

Shrinkage is measured by comparing the cost of inventory on the books to the cost of inventory physically counted.

Discuss considerations that should be fully taken into account when developing inventory related relevant costs for use in an economic order quantity (EOQ)model.

Answer the following question(s) using the information below: Sandrington Ltd.operates a retail bicycle shop.Wheel covers are popular with customers.Sandrington purchases these covers for $48 per pair, and expects to sell 5,000 pairs per year.Ordering costs are estimated at $180 per order and relevant insurance handling etc.costs are estimated at $3.60 per month.The company has established a 14% annual return on investment. -The EOQ quantity for Sandrington is:

The management accountant must design performance measures to evaluate and control JIT production.One of the dominant sources of information that the management accountant might use for this would be the personal observations of production line workers and team leaders.Another dominant source of information would be

Corry Corporation manufactures filters for cars, vans, and trucks.A backflush costing system is used and standard costs for a filter are as follows: Filters are scheduled for production only after orders are received, and are shipped immediately upon completion.This results in product costs being charged directly to cost of goods sold.In December, 3,000 filters were produced and shipped.Materials were purchased at a cost of $8,450 and actual conversion costs of $13,650 were recorded.Variances are written off to Cost of Goods Sold.Required: Prepare journal entries to record December's cost transactions for the production and sale of the filters.

Falcon Industries manufactures customized industrial compounds.All processing is initiated when an order is received.For April there were no beginning inventories.Conversion costs and direct materials are the only manufacturing cost accounts.Direct materials are purchased under a just-in-time system.Journal entries are recorded at three trigger points using backflush costing: purchase of direct materials, completion of finished goods, and sale of product.Additional information is as follows: Required: Record all journal entries for the monthly activities related to the above transactions assuming that backflush costing is used.The company uses a standard costing system for recording the purchase and use of direct materials; and, the recording of conversion costs.Material price variances are recorded at the time of purchase then closed to cost of goods sold; all other variances are recorded at the completion of finished goods trigger point as a direct charge, or credit to Cost of Goods Sold.

An important component in several of the cost categories which are not typically recorded in accounting systems is

Factors that are relevant in a JIT system, but not for the EOQ model, include

Stanford Ltd.purchases 1,600,000 units of its product every year.The ordering costs are $50 per order and the annual carrying cost of one unit is $1.60.Under its current inventory policy, it purchases the units 80 times during the year, in batches of 20,000 units per order.Required: a.Calculate the EOQ for Stanford Ltd. b.By ordering at the EOQ, how much in inventory costs will Stanford Ltd.save per year?

Costs incurred when preparing and issuing purchase orders are included in which of the following categories?

Answer the following question(s) using the information below: The following information has been gathered for Product A: -What are the annual carrying costs for Product A if the company orders at the EOQ amount?

Hawthorne Ltd.purchases 1,500,000 units of its product every year.The ordering costs are $30 per order and the annual carrying cost of one unit is $1.60.Under its current inventory policy, it purchases the units 150 times during the year, in batches of 10,000 units per order.Required: a.Calculate the EOQ for Hawthorne Ltd. b.By ordering at the EOQ, how much in inventory costs will Hawthorne Ltd.save per year?

Just-in-Time (JIT)Production is a system in which each component on a production line is produced immediately as needed by the next step in the production line.

Backflush costing is an example of sequential tracking.

Answer the following question(s) using the information below: Sandrington Ltd.operates a retail bicycle shop.Wheel covers are popular with customers.Sandrington purchases these covers for $48 per pair, and expects to sell 5,000 pairs per year.Ordering costs are estimated at $180 per order and relevant insurance handling etc.costs are estimated at $3.60 per month.The company has established a 14% annual return on investment. -Which of the following factor(s) would cause an increase in the EOQ?

The Economic Order Quantity increases with demand and ordering costs and decreases with carrying costs.

Companies that have fast manufacturing lead times usually find that a version of backflush costing will report cost numbers similar to what a sequential costing approach would report.