 Show Cost Accounting, 14e, Global Edition (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 1 Copyright © 2012 Pearson Education Recommended textbook solutions
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What will happen to the ordering cost and the holding cost as the order quantity increases for a material?The cost of ordering inventory falls with the increase in ordering volume due to purchasing on economies of scale. However, as the size of inventory grows, the cost of holding the inventory rises. EOQ is the exact point that minimizes both of these inversely related costs.
How would an increase in ordering costs affect the EOQ?Economic order quantity will be higher if the company's setup costs or product demand increases. On the other hand, it will be lower if the company's holding costs increase.
What will happen to EOQ If ordering cost decrease?For example, if you reduced your product costs your EOQ will go up. If the bank interest rates are low, your lot size will go up.
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Increases in the carrying cost and decreases in the ordering cost per purchase order result in:
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