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Inventory Costs for Management Decisions
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Inventory Costs for Management Decisions

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Questions and Answers

What does 'Item Cost' include when the item is manufactured?

  • Purchase price of one unit
  • Direct material, labor, indirect materials, and overhead expenses (correct)
  • Insurance costs, property taxes, and storage costs
  • Opportunity cost of invested funds

    • What are 'Ordering (setup) costs' associated with?

  • Capacity-related costs
  • Carrying or holding costs
  • Economic Order Quantity (EOQ) model
  • Production of a lot internally or placing an order externally (correct)

    • What are 'Holding (or carrying) costs' primarily related to?

  • Storage costs
  • Obsolescence and deterioration
  • Opportunity cost of invested funds (correct)
  • Insurance costs

    • How can capacity-associated costs be avoided?

    <p>By leveling production and producing items in slack periods for sale in peak periods</p> Signup and view all the answers

    What are the primary components of the 'Item Cost' when the item is manufactured?

    <p>Direct material, labor, indirect materials, overhead expenses</p> Signup and view all the answers

    What is included in the 'Holding (or carrying) costs' for inventory?

    <p>Opportunity cost of invested funds, overtime, obsolescence</p> Signup and view all the answers

    How can capacity-associated costs be avoided in inventory management?

    <p>By leveling production and producing items in slack periods</p> Signup and view all the answers

    What method is used to determine the adequate inventory level for independent demand materials?

    <p>Economic Order Quantity (EOQ) model</p> Signup and view all the answers

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