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Test Bank Managerial Accounting: Creating Value in a
Dynamic Business Environment, 13th Edition by Ronald
Hilton A+
Appendix III
1) The EOQ model is a mathematical tool for determining the order quantity that:
A) maximizes the costs of ordering and holding inventory.
B) equals the costs of ordering and holding inventory.
C) minimizes the costs of ordering and holding inventory.
D) has no effect on the costs of ordering and holding inventory.
E) none of these answers are correct.
2) Inventory decisions involve a delicate balance between which of the following classes of
costs?
A) Ordering costs, advertising costs, and shipping costs
B) Advertising costs, holding costs, and shortage costs
C) Ordering costs, holding costs, and shortage costs
D) Ordering costs, shipping costs, and shortage costs
E) Shipping costs, holding costs, and shortage costs
3) Which one of the following is true of a just-in-time (JIT) system?
A) JIT system uses a “pull” approach to controlling manufacturing
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B) Inventory of raw materials and parts are kept as a buffer
C) Inventory of partially completed parts are kept as a buffer
D) Finished goods are kept as a buffer
E) None of the answers are correct
4) Which one of the following is true of Economic Order Quantity (EOQ)?
A) The EOQ approach takes the view that some inventory is necessary in order to optimize
the order quantity
B) Is calculates as the square root of the following: (2 × annual requirement × cost per order)
÷ annual holding cost per unit
C) The graphical approach is one method of calculating EOQ
D) A mathematical tool for determining the order quantity that minimizes the cost of
ordering and holding inventory
E) All of the answers are correct
5) Which of the following is a way that JIT efficiencies are achieved?
A) Negotiating long-term supply agreements
B) Eliminating inspections
C) Reducing the number of vendors
D) Making less frequent payments
E) All of the answers are correct
6) Inventory holding costs typically include:
A) clerical costs of purchase-order preparation.
B) costs of deterioration, theft, or spoilage.
C) costs associated with lost sales to customers.
D) forgone interest on money tied up in inventory.
E) both costs of deterioration, theft, or spoilage and forgone interest on money tied up in
inventory.
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7) Inventory holding costs would typically include all of the following except:
A) insurance.
B) theft.
C) transportation.
D) obsolescence.
E) warehouse rent.
8) Which of the following is classified as an inventory shortage cost?
A) Purchase order preparation
B) Production disruption
C) Lost sales and lost customers
D) Spoilage
E) Both production disruption and lost sales and lost customers
9) At the economic order quantity:
A) total annual inventory costs, holding costs, and ordering costs are all minimized.
B) total annual inventory costs and holding costs are minimized.
C) total annual inventory costs are minimized, and holding costs equal ordering costs.
D) total annual inventory costs are minimized, and holding costs exceed ordering costs.
E) total annual inventory costs are minimized, and ordering costs exceed holding costs.
10) Langdon Enterprises uses an economic order quantity model and has determined an
optimal order size of 2,200 units. Annual demand is 44,000 units, ordering costs are $60 per
order, and holding costs are $6 per unit. The company's annual holding costs total:
A) $13,200.
B) $14,400.
C) $485,200.
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D) $265,200.
E) none of the answers is correct.
11) Langdon Enterprises uses an economic order quantity model and has determined an
optimal order size of 500 units. Annual demand is 10,000 units, ordering costs are $50 per order,
and holding costs are $4 per unit. The company's annual holding costs total:
A) $2,000.
B) $3,000.
C) $21,000.
D) $41,000.
E) none of the answers is correct.
12) Reflection Graphics uses a special purpose paper on 80% of its jobs. The paper is
purchased in 310-sheet packages at a cost of $310 per package. Management estimates that the
cost of placing and receiving a typical order is $36, and the annual cost of carrying a package in
inventory is $3.60. Reflection Graphics uses 4,700 packages of paper each year. Production is
constant, and the lead time to receive an order is two week.
The economic order quantity is approximately:
Note: Round your final answer to the nearest whole number.
A) 307 packages.
B) 4,018 packages.
C) 2,093 packages.
D) 1,636 packages.
E) 1,166 packages.
13) Reflection Graphics uses a special purpose paper on 80% of its jobs. The paper is
purchased in 100-sheet packages at a cost of $100 per package. Management estimates that the
cost of placing and receiving a typical order is $15, and the annual cost of carrying a package in
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