Reference no: EM13583447

Question #1

a) Under which inventory costing method would managers have an incentive to build excess inventory? Be sure to justify your answer.

b) What can a manager do to reduce the incentive to build excess inventory? Be specific!

Question #2

a) What role does the choice of capacity level impact income reported under variable costing? Be specific!

b) What role does the choice of capacity level impact income reported under full absorption costing? Be specific!

Question #3

A firm expects to sell 10,000 units of its product annually. It estimates that it costs $200 to place an order and that each unit costs $7 annually to carry in inventory. It takes 7 days to receive an order once it is placed, and the store is open 365 days per year.

a) How many units should the firm order at a time if it wants to minimize the sum of ordering and carrying costs?

b) How many orders will it place in a year?

c) What will its average inventory level be during the year?

d) What is its reorder point?

Question #4

If a firm decides to implement a JIT inventory system, list and describe five metrics (measures) that the firm should begin tracking to assess the JIT system.