1. Why is maintaining the right “balance” of inventory a challenge? Because it affects the tradeoffs in inventory carrying cost and stock out costs, as well as the after values.
2. What are the four (4) types of inventory classifications? Base, buffer, in transit, and speculative stock.
3. What are the components of inventory carrying costs? Obsolesce costs, inventory shrinkage, storage costs, handling costs, insurance costs, interest costs, taxes.
4. Calculate the inventory carrying cost if weekly demand is 130 units, the value of the item is $70 and the carrying cost is 18% of the item value. For this (formula beings: inventory carrying cost = cost of owning inventory per year/inventory value AND/OR carrying cost x inventory value) I’ve received a few different answers that no matter how right I do the formula and plug in the numbers do… do not look right, at all: 2,628,888.889 as well as 50555.555556 and 505%.
5. If your average daily demand is 70 units, and the replenishment cycle (lead time) is 5 days; with 60 units of safety sock, what is the re-order point? Once again, received ridiculous answers.
6. What two costs are involved when calculating economic order quantity (EOQ)? The cost of carrying inventory and the cost of ordering the inventory.
7. Explain ABC inventory analysis, and the reasoning for its use. It’s an approach used during the reviewing of inventory, acknowledging that not all inventory holds the same value apply a rating system ranging from A to C. 80/20 rule.
8. What are some options of dealing with dead inventory? Include partial or full payment along with a no return policy, market the dead stock, sell the inventory to someone who specializes in dealing with dead inventory, or donate the dead inventory to charitable causes.
9. If your cost of goods sold for the year was $825,000, with beginning inventory of $240,000 and ending