The Franklin County Hospital Is Currently Using a Continuous Review

question 157

Multiple Choice

The Franklin County Hospital is currently using a continuous review system to control its inventory. One of the items in inventory is an elastic band. The average demand for this item is 200 boxes per week, and the standard deviation in weekly demand is 50 boxes. If the lead time is 3 weeks and the hospital wants a 99 percent cycle- service level, what is the reorder point for this item? A normal table is appended to this exam.

• A) less than or equal to 650 boxes
• B) greater than 650 boxes but less than or equal to 750 boxes
• C) greater than 750 boxes but less than or equal to 850 boxes
• D) greater than 850 boxes

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Definitions:

Conversion Costs

Conversion costs are the combined costs of direct labor and factory overhead incurred to convert raw materials into finished goods.

FIFO Method

An inventory valuation method where the first goods purchased or produced are the first ones removed from inventory and sold, standing for "first-in, first-out."

Equivalent Unit

An equivalent unit measures a portion of completed goods in terms of an equal number of fully completed units, used in cost accounting to assess production and inventory.

Current Period

Refers to the present accounting period or cycle in which business transactions are being recorded and reported.