84) When implementing TQM, managers should remember that change and turmoil are essential
elements of the implementation.
Topic: Total Quality Management
AACSB: Analytic Skills
85) The inventory investment is usually the largest single investment for a small firm.
Topic: Holding (Carrying) Costs
AACSB: Analytic Skills
86) It is better to maintain too little rather than too much inventory because there are significant
storage costs for excess inventory, but few if any costs associated with understocking inventory.
Topic: Holding (Carrying) Costs
AACSB: Reflective Thinking
87) The cost of units is simply the typical costs involved in having units in storage.
Topic: Cost of Units
AACSB: Analytic Skills
88) Although there are many costs associated with carrying large levels of inventory, the
opportunity costs of large inventories are virtually nonexistent.
Topic: Quantity: Economic Order Quantity
AACSB: Analytic Skills
89) Depreciation costs of holding inventory represent the reduced value of inventory over time.
Topic: Holding (Carrying) Costs
AACSB: Analytic Skills
90) Spoilage, obsolescence, and pilferage are all part of the set-up costs of inventory.
Topic: Holding (Carrying) Costs
AACSB: Analytic Skills
21
91) When thinking about inventory holding costs, remember that the greater the quantity ordered,
the greater the inventory carrying costs.
Topic: Holding (Carrying) Costs
AACSB: Analytic Skills
92) Set-up costs are the expenses incurred in the actual ordering of materials and inventory, or in
setting up the manufacturing line.
Topic: Setup Costs
AACSB: Analytic Skills
93) In the basic EOQ model, the higher the economic order quantity, the greater the number of
orders placed.
Topic: Economic Order Quantity (EOQ) with Usage
AACSB: Analytic Skills
94) The EOQ solution balances the ordering costs and the carrying costs of an inventory item so
that total costs are minimized.
Topic: Solving For EOQ
AACSB: Analytic Skills
95) The best way to minimize carrying costs is to order as many units as possible in each order.
Topic: Cost of Units
AACSB: Analytic Skills
96) To minimize ordering costs, the small business should place as few and as large orders as
possible.
Topic: Solving For EOQ
AACSB: Analytic Skills
97) The advantage of the EOQ with usage calculation is that it takes into consideration that the
inventory order does not arrive at the same time.
Topic: Economic Order Quantity (EOQ) with Usage
AACSB: Analytic Skills
22
98) Total inventory cost is maximized when carrying cost and ordering costs are balanced.
Topic: Solving For EOQ
AACSB: Analytic Skills
99) The best purchase price is the lowest price at which one can obtain goods and services.
Topic: Price
AACSB: Analytic Skills
100) The best purchase price is the lowest price at which the owner can obtain goods and
services of the best quality.
Topic: Price
AACSB: Reflective Thinking
101) For the typical small business owner, price is always a substantial factor when purchasing
inventory and supplies.
Topic: Price
AACSB: Reflective Thinking
102) Selling terms are as important to the small business as the actual price of the goods and
services being purchased.
Topic: Price
AACSB: Analytic Skills
103) Trade discounts are offered within the distribution channel and are on a graduated scale.
Topic: Trade Discounts
AACSB: Analytic Skills
104) A noncumulative quantity discount grants a discount if a large enough volume of
merchandise is purchased in a single order.
Topic: Quantity Discounts
AACSB: Analytic Skills
23
105) Cumulative quantity discounts are provided to members of the distribution channel in
recognition of the services they provide the manufacturer.
Topic: Quantity Discounts
AACSB: Analytic Skills
106) Cash discounts are offered to customers as an incentive to pay for merchandise promptly.
Topic: Cash Discounts
AACSB: Analytic Skills
107) “3/10, EOM” means a 3% discount can be taken if the bill is paid by the tenth day of the
month after the purchase.
Topic: Cash Discounts
AACSB: Analytic Skills
108) Generally, business owners should not be lured into taking cash discounts vendors offer;
that cash could be put to better use elsewhere.
Topic: Cash Discounts
AACSB: Analytic Skills
109) As it is a good idea to take advantage of discounts from vendors, small business owners
ought to stretch accounts payable to at least the first notice of past due.
Topic: Cash Discounts
AACSB: Analytic Skills
110) The advantages of developing close, cooperative relationships with a single supplier
outweigh the risks of sole sourcing in most cases.
Topic: Final Decision
AACSB: Analytic Skills
111) Selling on consignment means that the small business owner does not purchase the
merchandise carried from the supplier (called the consignor).
Topic: Selling on Consignment
AACSB: Analytic Skills
24
112) If a vendor offers a firm 2/10, net 30, and the firm doesn’t take it, the firm is paying an
interest rate of over 36% on an annual basis.
Topic: Cash Discounts
AACSB: Reflective Thinking
113) The time gap between placing an order and receiving is called lead time.
Topic: Timing: When to Order
AACSB: Analytic Skills
114) The cushion owners build into their inventory to prevent stockouts is called demand stock.
Topic: Timing: When to Order
AACSB: Analytic Skills
115) The simple reorder technique assumes that the rate of usage is constant and that lead time is
constant.
Topic: Timing: When to Order
AACSB: Analytic Skills
116) Because of its assumptions, the simplest reorder model is no longer valid or useful to the
small business owner in today’s dynamic business environment.
Topic: Timing: When to Order
AACSB: Analytic Skills
117) The formula for calculating safety stock is: safety stock = SLF × SDL.
Topic: Timing: When to Order
AACSB: Analytic Skills
118) The appropriate service level factor in the safety stock calculation is called the Z score.
Topic: Timing: When to Order
AACSB: Analytic Skills
25
119) The vendor certification program is an effort by the SBA to protect small businesses from
unscrupulous vendors.
Topic: Vendor Certification
AACSB: Analytic Skills
120) The purpose of a vendor certification program is to create a list of acceptable vendors that
the small business owner can spread his/her orders among to avoid stocking out due to delays in
shipments.
Topic: Vendor Certification
AACSB: Reflective Thinking
121) To add objectivity to the vendor selection process, many firms are establishing vendor
certification programs.
Topic: Vendor Certification
AACSB: Reflective Thinking
122) The small business owner should concentrate purchases at a single supplier.
Topic: Number of Suppliers
AACSB: Analytic Skills
123) “Identification” is the designation of goods as the subject matter of the sales contract.
Topic: Identification
AACSB: Analytic Skills
124) Risk of loss always passes with title to the goods.
Topic: Title
AACSB: Analytic Skills
125) Under the Uniform Commercial Code, the party who has title to goods also has the risk of
loss if those goods are lost, damaged, or destroyed.
Topic: Title
AACSB: Analytic Skills
26
126) Seller and buyer can agree to the terms under which title and risk of loss shift in a business
transaction.
Topic: Risk of Loss: Rule 1
AACSB: Analytic Skills
127) In an “F.O.B. seller” (shipment) contract, both title and risk of loss transfer to the buyer
when the seller delivers the goods to the carrier or shipper.
Topic: Risk of Loss: Rule 3. F.O.B Seller
AACSB: Analytic Skills
128) A sales contract designated F.O.B. buyer requires the seller to deliver the goods to the
buyer’s place of business (or some other designated location), and risk of loss does not pass to
the buyer until the goods are so delivered.
Topic: Risk of Loss: Rule 3. F.O.B Buyer
AACSB: Reflective Thinking
129) A buyer gets an insurable interest in goods once they are identified as the goods pertaining
to the contract.
Topic: Insurable Interest
AACSB: Analytic Skills
130) Both a buyer and a seller cannot have an insurable interest in the same goods.
Topic: Insurable Interest
AACSB: Analytic Skills
131) A consignment contract means that the supplier (i.e., the consignor) retains title and risk of
loss for the consigned merchandise.
Topic: Selling on Consignment
AACSB: Analytic Skills
27