Appendix 7: Answers to Reinforcement Quizzes
Answers to Reinforcement Quiz ñ Section I, Chapter 6
1.
In supply control, which of the following is included in ìadministrative lead
time?î
a.
time required to physically count the quantity of inventory on hand
b.
time required to order and receive delivery of stock
c.
time required to coordinate customer needs before the year begins
d.
time required to prepare periodic management reports
Answer: (b). Administrative lead time is one of the factors considered
in determining when to replenish inventory levels. Administrative lead
time includes the time needed to order and receive delivery of stock.
The other three answers are irrelevant.
2.
Which of the following pairs of factors are ìtraded offî against each other
in determining the Economic Order Quantity?
a.
pilferage costs and obsolescence costs
b.
receiving costs and inspecting costs
c.
ordering costs and carrying costs
d.
perpetual inventory costs and periodic inventory costs
Answer: (c). The more orders placed for supplies, the greater the total
ordering costs, and the lower the carrying costs. In the Economic
Order Quantity formula, these costs are ìtraded offî against each other
to arrive at the optimum quantity to order.
3.
Which of the following inventory/supply control rules is most likely to
ensure that the optimum quantity of supplies is on hand?
a.
taking a physical inventory at year-end
b.
using all available supply funds before the end of the year
c.
storing supplies in such way as to prevent deterioration
d.
ordering enough to meet user demands, but not so much as to
create excesses
Answer: (d). The most favorable amount of inventory to have on hand
is the result of procedures and practices that ensure that quantities
ordered are sufficient to meet user demands, without creating excess
quantities that create excessive carrying costs. Answers (a) and (c)
are useful procedures, but they donít necessarily ensure optimum
amounts on hand. Answer (b) is a wasteful procedure.
4.
A copy of the purchase order should go to the receiving department to
alert it to incoming supplies. Regarding that copy, which of the following
procedures is most likely to ensure accurate counts on inspection?
a. show the quantities ordered on that copy
b. do not show the quantities ordered on that copy
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Appendix 7: Answers to Reinforcement Quizzes
c.
show the unit cost of the quantities ordered on that copy
d. do not show the unit cost of the quantities ordered on that copy
Answer: (b). Not showing quantities ordered on the receiving
departmentís copy of the purchase order requires the inspector to
physically count the items received. Showing the quantities (a) could
result in the failure of the inspector to actually count the deliveries.
Showing or not showing unit costs (c and d) are not likely to affect the
inspection one way or the other.
5.
Using dollar amounts in each situation, how is the inventory turnover
calculated?
a.
supplies issued, divided by average inventory
b.
supplies issued, divided by supplies received
c.
defects found on inspection, divided by supplies received
d. stock-outs, divided by supplies issued
Answer: (a). The inventory turnover calculation is a measure of how
fast the inventory moves through the system. All other things equal, a
high turnover is favorable because it means that, from an overall
perspective, there is not likely to be very much slow-moving stock in
inventory. The number of times the inventory ìturns overî is calculated
by dividing the dollar amount of supplies issued by the average
inventory of supplies.
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AGA Study Guide 3, 2016 Edition

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AGA CGFM Study Guide 3: Governmental Financial Management and Control