Fundamentals of Financial Management, Third Edition

OBJECTIVE-TYPE QUESTIONS

1. Mark true or false.
   1. Carrying cost and the order cost move in the same direction.
   2. Lead time is large in case of JIT inventory system.
   3. Safety level of stock is normally expressed in terms of amount of the raw material.
   4. Stock-out cost is an implicit cost arising out of lost sales due to shortage of supply.
   5. Inventory does not include semi-finished goods.
2. Choose the most suitable answer.
   1. The larger the size of inventory:
      1. the greater is the order cost
      2. the lower is the order cost
      3. the order cost remains unchanged
   2. Holding cost:
      1. increases with growing inventory
      2. decreases with growing inventory
      3. remains unchanged with growing inventory
   3. Economic order quantity represents a point where:
      1. order cost = holding cost
      2. order cost ...