CHAPTER 20 QUIZ
1. Which of the following categories of costs are important when managing inventories of
goods for sale according to the authors of the text?
a. Purchasing, ordering, supply, spoilage, and opportunity
b. Purchasing, stockout, carrying, ordering, and quality
c. Buying, holding, invoicing, opportunity, and investment
d. Supply, obsolescence, holding, stockout, and transportation-in
The following data apply to questions 2 through 6.
Liberty Celebrations, Inc. manufactures a line of flags. The annual demand for its flag
display is estimated to be 100,000 units. The annual cost of carrying one unit in inventory
is $1.60, and the cost to initiate a production run is $50. There are no flag displays on hand
but Liberty had scheduled 60 equal production runs of the display sets for the coming year,
the first of which is to be run immediately. Liberty Celebrations has 250 business days per
year. Assume that sales occur uniformly throughout the year and that production is
instantaneous.
2. [CMA Adapted] If Liberty Celebrations does not maintain a safety stock, the estimated
total carrying cost for the flag displays for the coming year is
a. $2,667.
b. $2,000.
c. $1,600.
d. $1,333.
3. [CMA Adapted] The estimated total set-up cost for the flag displays for the coming year
is
a. $2,000.
b. $3,000.
c. $8,000.
d. $12,500.
4. [CMA Adapted] If Liberty Celebrations were to schedule 30 equal production runs of
the flag display for the coming year, instead of 60 equal runs, the sum of carrying costs
and set-up costs for the coming year would increase (decrease) by
a. $(166).
b. $-0-.
c. $166.
d. $1,500.
5. [CMA Adapted] The number of production runs per year of the flag displays that would
minimize the sum of carrying costs and set-up costs for the coming year is
a. 50.
b. 40.
c. 30.
d. 20.
6. [CMA Adapted] A safety stock of a 3-day supply of flag displays would increase Liberty
Celebration’s planned average inventory in units by
a. 1,200.
b. 800.
c. 400.
d. zero.
7. Which of the following is not a major feature of a just-in-time production system?
a. Workers are trained to be multiskilled.
b. Emphasis is placed on increasing set-up time and manufacturing lead time.
c. Production is organized in manufacturing cells.
d. Total quality management is aggressively pursued.
The following data apply to questions 8 through 10.
Sit-On-It began operations in January 2008. Sit-On-It manufactures vehicular seat covers
using a just-in-time production system supported by a backflush costing system. This
system has two trigger points: (1) the purchase of raw materials, and (2) the sale of
finished good units. Standard unit costs are $40 for raw materials and $25 for conversion
costs. Sit-On-It writes off any underallocated or overallocated conversion costs
immediately. The following data were available for January 2008:
Production in good units 19,800
Sales of good units 19,750
Purchases of raw materials [20,000 units at $40] $800,000
Conversion costs incurred $496,000
8. The journal entry to record the manufacture of finished good units is
a. Finished goods control 1,287,000
Inventory: Raw and in-process control 792,000
Conversion costs allocated 495,000
b. Finished goods control 1,287,000
Conversion cost variance 1,000
Inventory: Raw and in-process control 792,000
Conversion costs control 496,000
c. Inventory: Raw and in-process control 800,000
Conversion costs allocated 495,000
Conversion cost variance 1,000
Various assets and liabilities 1,296,000
d. No entry
9. The January ending total for all inventory balances is
a. $16,250.
b. $12,250.
c. $11,250.
d. $10,000.
10. The January cost of goods sold is
a. $1,283,750.
b. $1,284,750.
c. $1,286,000.
d. $1,296,000.
CHAPTER 20 QUIZ SOLUTIONS
