3. 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, Michael Moolah, 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

Everything else being equal and in the absence of a safety stock, when orders are placed for quantities less than those indicated using the Economic Ordering Quantity model, these costs will be the greater of the two major inventory costs.

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

At this inventory level, new items must be ordered.

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. Sales can be forecasted perfectly.

2. Sales are evenly distributed throughout the year.

3. Orders are received when expected.

What are three assumptions of the Economic Ordering Quantity model?

What are three assumptions of the cash-transfer model?

What are three factors that affect an items annual or seasonal demand?