Student: Please answer Review and Discussion Questions at the end of each chapter. Each Chapter has to be separated by chapter. Answers should be detailed and formulated from the book only! Do not use...

Chapter 9
Question 1. Identify and discuss the four types of inventories.
Answer: The four types of inventories are as following:
1) Raw materials: These are the material which are required to make or produce the parts of the product or the product. For example, in a power generation plant, coal is a raw material and in a sugar mill, sugar cane is a raw material.
2) Components: These are parts which are required to assemble to make a product. For example, A bicycle seat, chain, tires are the components used to make a bicycle in a bicycle manufacturing company. Most of the products are made up of component parts that are required to assemble.
3) Work-in-progress: Some of materials are either being worked on or waiting to be worked on. These materials are known as work-in-progress inventory. Materials waiting to be processed, material being processed, and materials moving from one process to another are all considered as work-in-progress inventory.
4) Finished products: These are the products which are completed and waiting to be shipped. These products need no additional works. For example, sugar is finished product in sugar mill, bicycle is finished product in bicycle manufacturing company.
Question 2. Identify and discuss the principal reasons for having inventory.
Answer: Principal reasons for having inventory are as followings:
· Lot size: Lot size is a quantity produced or ordered together. The lot size is often result of attempting to minimize costs. Its is often impractical, if not impossible to have the exact number of necessary items available at the precise time they are needed. An analogy can be made in the case of two trucks carrying the same parts for delivery with the second truck at a short distance behind the first. It would likely be more practical to ship the parts together with the second shipment total to be held as a part of lot size inventory until it is needed. Sometimes, it may be more economical to ship whole truck full of parts and hold them in the inventory until needed. While deciding the lot size, the decision rests on minimizing costs. It is often less costly to hold inventory to reduce the ordering cost.
· Anticipation: Inventory is sometimes held to anticipate the higher demand of a products during certain time interval. Like toys sold at Christmas are often made long before to anticipate the high demand during the Christmas season. In this case, the added cost associated with increased inventory is less costly than increasing production. So for such cases, storing the product in inventory is good idea.
· Fluctuation: Sometimes, due to some unexpected reasons, there is delay in delivery or there may be sudden increase in demand of product. So to avoid such cases, maintaining more inventory may be good idea to avoid costly problems. Fluctuation stock protects against unanticipated fluctuations in supply and demand. It is often called safety stock or reserve stock.
· Transportation: Transportation of materials being shipped is another reason for holding inventory. Materials needed for production may be in shipment from seller to buyer or there may be in shipment from one warehouse to another.
· Hedge: Hedge inventory occurs when an organization orders more than it usually would because it believes the...