Multiple Choice Questions: Accounts

1. Sully Company uses 3,000 yards of canvas each day to make tents. It usually takes ten days from the time Sully orders the material to when it is received. If Sully’s desired safety stock is 12,000 yards, what is Sully’s order point?
a.
12,000 yards
b.
21,000 yards
c.
30,000 yards
d.
42,000 yards

ANS: D
3,000 (daily usage) x 10 (lead time)
30,000
Safety stock
12,000
Order point
42,000

PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 3A - Strategic Management TOP: AACSB - Analytic

2. What is the objective of the economic order quantity (EOQ) model for inventory?
a.
To minimize order costs or carrying costs, whichever are higher
b.
To minimize order costs or carrying costs and maximize the rate of inventory turnover
c.
To minimize the total order costs and carrying costs over a period of time
d.
To order sufficient quantity to economically meet the next period's demand

ANS: C
If the demand for the product can be determined because it is predictable, the essence of any EOQ model for inventory is to minimize the total order costs and also minimize the total carrying costs.

PTS: 1 DIF: Easy REF: P. OBJ: 1
NAT: IMA 3A - Strategic Planning TOP: AACSB - Analytic 3. Expected annual usage of a particular raw material is 1,200,000 units, and standard order size is 10,000 units. The invoice cost of each unit is $145, and the cost to place one purchase order is $105. The estimated annual order cost is:
a.
$12,000.
b.
$17,400.
c.
$12,600.
d.
$800,000.

ANS: C
Annual order cost
=
Number of orders  Per order cost

=
1,200,000 units
 $105

10,000 units

=
120 orders  $105

=
$12,600

PTS: 1 DIF: Moderate REF: P. OBJ: 1
NAT: IMA 3A - Strategic Planning TOP: AACSB - Analytic

4. The personnel involved in the physical control of materials includes all of the following except the:
a.
Purchasing agent.
b.
Receiving clerk.
c.
Cost accountant.
d.
Production department supervisor.

ANS: C
The cost accountant has the responsibility for the accounting records