Question

Dry Creek Company decreased the size of inventory order quantities that had previously been determined using the EOQ model. What is the impact on the total amount of annual carrying and ordering costs?

Select one:

a. no change

b. decrease

c. increase

d. cannot be determined

JIT purchasing is done using

Select one:

a. short-term contracts emphasizing price.

b. long-term contracts based on quality, reliability, and price.

c. short-term contracts based on quality, reliability, and price.

d. inventory to hedge against stockouts and price increases.

Answer 1

1.EOQ model determines the quantity of the order that should be placed at once which will be most economic in terms of carrying & re-ordering cost for the business entity. Any deviation from this level will lead to unviable results for the entity.

So, decreasing the order size will lead to Increase in the costs for the business.

2.JIT purchasing is done using - B Long term contracts based on quality, reliability & price.

JIT method refers to the method of placing the order as soon as it is needed i.e. within the shortest period of time available to reduce the storage , carrying & loss from storage costs. If this is done without guaranteeing that the contract will be valid for long term , then it can cause loss to the entire business & supplier can misuse the opportunity to extract higher prices, supply lower quality goods & change the terms of the contract frequently to his advantage.