5. Inventory management systems

Lets Play . . . Cash for Questions!

Imagine that you are a contestant on a popular television quiz show, Cash for Questions. You are thrilled that the category is Corporate Cost of Capital, because you just learned about the concepts and calculations used in the management of a firms inventory in your corporate finance class.

There are five questions in this category, and the host, Gavin Greenbacks, will give you the answer to each question in each of the following boxes. Remember, you must phrase your response in the form of a question and type in the correct entry. Good luck!

Disclaimer: You wont actually receive any money if you answer the questions correctly.

Question 1: $100

This practice involves purchasing components rather than producing them in house.

Define .

Question 2: $200

This method of accounting for inventory bases the value of a firms cost of goods sold on the oldest inventory items and the value of the remaining (ending) inventory on the goods purchased more recently.

Define .

Question 3: $300

These costs, associated with a shortage or an outage of inventory, are not included in the Economic Ordering Quantity model.

Define .

Question 4: $400

This cost is calculated as the sum of a firms total carrying and ordering costs.

Define .

Question 5: $500

A firm holds this type of inventory to satisfy a greater-than-average or greater-than-expected consumer demand or to protect against delays in receiving orders.

Define .

You are now in the final round of the game. This is the Show-Off Round. Given three statements or phrases, identify the question that the statements answer. Identifying the correct question will earn you $1,000.

Show-Off Round: $1,000

1. The length of time needed to deliver an order

2. The size of the items safety stock

3. The number of units used during the delivery period

What are the factors that directly affect an items total inventory costs?

What are the factors that affect an items Economic Ordering Quantity?

What are the factors that affect an items order point?