Cost Accounting

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Cost Accounting, 14e (Horngren/Datar/Rajan)
Chapter 20 Inventory Management, Just-in-Time, and Simplified Costing Methods

Objective 20.1

1) Which of the following industries would have the highest cost of goods sold percentage relative to sales? A) computer manufacturers
B) retail organizations
C) drug manufacturers
D) The percentage will usually depend on the success of a particular company. Answer: B
Diff: 2
Terms: inventory management
Objective: 1
AACSB: Reflective thinking

2) The costs of goods acquired from suppliers including incoming freight or transportation costs are: A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: A
Diff: 2
Terms: purchasing costs
Objective: 1
AACSB: Reflective thinking

3) The costs of preparing, issuing, and paying purchase orders, plus receiving and inspecting the items included in orders is: A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: B
Diff: 2
Terms: ordering costs
Objective: 1
AACSB: Reflective thinking

4) The costs that result from theft of inventory are:
A) shrinkage costs
B) external failure costs
C) stockout costs
D) costs of quality
Answer: A
Diff: 2
Terms: shrinkage
Objective: 1
AACSB: Reflective thinking

5) The costs that result when a company runs out of a particular item for which there is a customer demand are: A) shrinkage costs
B) shortage costs
C) stockout costs
D) EOQ estimation costs
Answer: C
Diff: 2
Terms: stockout costs
Objective: 1
AACSB: Reflective thinking

6) The costs that result when features and characteristics of a product or service are NOT in conformance with the specifications are: A) inspection costs
B) costs of quality
C) purchasing costs
D) design costs
Answer: B
Diff: 2
Terms: stockout costs
Objective: 1
AACSB: Reflective thinking

7) The costs that result when a company holds an inventory of goods for sale: A) purchasing costs
B) carrying costs
C) opportunity costs
D) interest costs
Answer: B
Diff: 2
Terms: stockout costs
Objective: 1
AACSB: Reflective thinking

8) Quality costs include:
A) purchasing costs
B) ordering costs
C) stockout costs
D) prevention costs
Answer: D
Diff: 2
Terms: quality costs
Objective: 1
AACSB: Reflective thinking

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.

Annual demand (weekly demand=1/52 of annual demand)20,800 units
Orders per year20
Lead time in days15 days
Cost of placing an order$100

9) What is the reorder point?
A) 1,040 units
B) 857 units
C) 1,560 units
D) 2,080 units
Answer: B
Explanation: B) 20,800/52 = 400/7 = 57.14 daily demand × 15 = 857.1 Diff: 2
Terms: reorder point
Objective: 1
AACSB: Analytical skills

10) Retailers generally have a high percentage of net income to revenues. Answer: FALSE
Explanation: Retailers have a low percentage of net income to revenues. Diff: 2
Terms: inventory management
Objective: 1
AACSB: Analytical skills

11) Inventory management is the planning, organizing, and controlling activities that focus on the flow of materials into, through, and from the organization. Answer: TRUE
Diff: 2
Terms: inventory management
Objective: 1
AACSB: Analytical skills

12) Purchasing costs arise in preparing and issuing purchase orders, receiving and inspecting the items included in the orders, and matching invoices received, purchase orders, and delivery records to make payments. Answer: FALSE

Explanation: Ordering costs arise in preparing and issuing purchase orders, receiving and inspecting the items included in the orders, and matching invoices received, purchase orders, and delivery...
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