Cost managment∶accounting and control 第二十一章解答手册.doc

PAGE PAGE 480 CHAPTER 21inventory management: economic order quantity, jit, and the theory of constraints questions for writing and discussion 1. Ordering costs are the costs of placing and receiving an order. Examples include clerical costs, documents, and unloading. Setup costs are the costs of preparing equipment and facilities so that they can be used for producing a product or component. Examples include wages of idled production workers, lost income, and the costs of test runs. Carrying costs are the costs of carrying inventory. Examples include insurance, taxes, handling costs, and the opportunity cost of capital tied up in inventory 2. As ordering costs decrease, fewer and larger orders must be placed. This, in turn, increases the units in inventory and, thus, increases carrying costs. 3. Reasons for carrying inventory: (a) to balance setup and carrying costs; (b) to satisfy customer demand; (c) to avoid shutting down manufacturing facilities; (d) to take advantage of discounts; and (e) to hedge against future price increases. 4. Stock-out costs are the costs of insufficient inventory, e.g., lost sales and interrupted production. 5. Safety stock is simply the difference between maximum demand and average demand, multiplied by the lead time. By reordering whenever the inventory level hits the safety-stock point, a company is ensured of having sufficient inventory on hand to meet demand. 6. The economic order quantity is the amount of inventory that should be ordered at any point in order to minimize the sum of ordering and carrying costs. 7. JIT minimizes carrying costs by driving inventories to insignificant levels. Ordering costs are minimized by entering into long-term contracts with suppliers (or driving setup times to zero). 8. Shutdowns in a JIT environment are avoided by practicing total preventive maintenance and total quality control and by developing close relationships with suppliers to ensure on-time delivery of materials. Internally, a