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, Simon Simoleons, 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 system can take the form of a red-line method in its simple form or an incredibly sophisticated computerized method, and it usually varies with the size of the firm and the nature of the goods being managed.

Define .

Question 2: $200

This method of accounting for inventory bases the value of a firms cost of goods sold on the newest inventory items and the value of the remaining (ending) inventory on the goods purchased least 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

The costs associated with warehousing a firms raw-materials, work-in-progress, and finished-goods inventories and the associated insurance and obsolescence costs are examples of this major type of inventory cost.

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 costs associated with carrying an inventory, expressed as a percentage of the items cost

2. The number of units held as safety stock

3. The sale price or cost of the item purchased

What are the three factors that determine the ordering cost of an items safety stock?

What are the three factors that determine the carrying cost of an items safety stock?

What are the three factors that determine the carrying cost of an items EOQ-based order size?