Chapter 20 Inventory Management, Just-in-Time, and Simplified Costing Methods

Cost Accounting, 15e (Horngren/Datar/Rajan)
Chapter 20 Inventory Management, Just-in-Time, and Simplified Costing
Methods

Objective 20.1

1) Among different types of costs associated with inventory, the costs of obtaining purchase
approvals are .
A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: B
Diff: 2
Objective: 1
AACSB: Analytical thinking

2) Among different types of costs associated with inventory, the incoming freight charges of
inventories are .
A) purchasing costs
B) ordering costs
C) stockout costs
D) carrying costs
Answer: A
Diff: 2
Objective: 1
AACSB: Analytical thinking

3) Among different types of costs associated with inventory, the opportunity cost of the
investment tied up in inventory is a(n) .
A) purchasing cost
B) ordering cost
C) stockout cost
D) carrying cost
Answer: D
Diff: 2
Objective: 1
AACSB: Analytical thinking

4) The costs that result from theft of inventory are .
A) shrinkage costs
B) external failure costs
C) stockout costs
D) costs of quality
Answer: A
Diff: 2
Objective: 1
AACSB: Analytical thinking




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,5) The costs that result when a company runs out of a particular item for which there is a
customer demand are .
A) shrinkage costs
B) shortage costs
C) stockout costs
D) EOQ estimation costs
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking

6) Among different types of costs associated with inventory, the costs that result when
features and characteristics of a product or service are not in conformance with the
customer specifications are .
A) EOQ estimation costs
B) costs of quality
C) purchasing costs
D) shrinkage costs
Answer: B
Diff: 2
Objective: 1
AACSB: Analytical thinking

7) Which of the following statements is true of costs associated with goods for sale?
A) Appraisal costs is a subcategory of shrinkage costs.
B) Special processing costs are always part of purchasing costs.
C) All inventory costs are not available in financial accounting systems.
D) Stockout costs are costs that arise when a company runs out of a particular item for
which there is no customer demand.
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking

8) Among different types of costs associated with inventory, four categories of quality costs
are .
A) control costs, inspection costs, internal failure costs, and external failure costs
B) prevention costs, inspection costs, internal failure costs, and external failure costs
C) prevention costs, appraisal costs, internal failure costs, and external failure costs
D) prevention costs, control costs, internal failure costs, and external failure costs
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking




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,9) Which of the following statements is true of costs associated with goods for sale?
A) Information-gathering technology increases the reliability and timeliness of inventory
information and increases the costs related to inventory.
B) Opportunity costs are not recorded in financial accounting systems because they are not
a significant component in several cost categories.
C) The costs of receiving and inspecting the items are included in the purchase orders are
ordering costs.
D) Opportunity costs are recorded in financial accounting systems but are a not significant
component in several cost categories.
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking

10) Most firms try not to hold more inventory than necessary because shrinkage costs
generally decrease when a firm's inventory increases.
Answer: FALSE
Explanation: Most firms try not to hold more inventory than necessary because shrinkage
costs generally increase when a firm's inventory increases.
Diff: 2
Objective: 1
AACSB: Analytical thinking

11) Inventory management is the planning, organizing, and controlling activities that focus
on the flow of materials into, through, and out of the organization.
Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking

12) Purchasing costs arise in preparing and issuing purchase orders, receiving and
inspecting the items included in the orders, and matching invoices received, purchase
orders, and delivery records to make payments.
Answer: FALSE
Explanation: Ordering costs arise in preparing and issuing purchase orders, receiving and
inspecting the items included in the orders, and matching invoices received, purchase
orders, and delivery records to make payments.
Diff: 2
Objective: 1
AACSB: Analytical thinking

13) The opportunity cost of the stockout includes lost contribution margin on the sale not
made plus any contribution margin lost on future sales due to customer ill will.
Answer: TRUE
Diff: 2
Objective: 1
AACSB: Analytical thinking




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, 14) Stockout costs arise when an organization experiences an ability to deliver its goods to
its customers.
Answer: FALSE
Explanation: Stockout costs are costs that arise when a company runs out of a particular
item for which there is customer demand.
Diff: 1
Objective: 1
AACSB: Application of knowledge

15) Shrinkage is measured by adding (a) the cost of the inventory recorded on the books in
the absence of theft and other incidents just mentioned, and (b) the cost of inventory when
physically counted.
Answer: FALSE
Explanation: Shrinkage is measured by the difference between (a) the cost of the inventory
recorded on the books in the absence of theft and other incidents just mentioned, and (b)
the cost of inventory when physically counted.
Diff: 2
Objective: 1
AACSB: Analytical thinking

16) Freight in charges forms part of purchasing costs of inventory.
Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking

17) All inventory costs are available in financial accounting systems.
Answer: FALSE
Explanation: Opportunity costs are rarely recorded in formal accounting systems and they
are often a very significant cost component.
Diff: 1
Objective: 1
AACSB: Analytical thinking




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