When Comparing the Traditional Approach of Inventory Management to JIT

question 115

Multiple Choice

When comparing the traditional approach of inventory management to JIT, which of the following statements is true?

• A)The traditional approach accepts the existence of setup costs, but not carrying costs or inventories. JIT accepts the existence of setup and carrying costs, but pushes for zero inventories.
• B)The traditional approach accepts the existence of carrying costs and inventories, but not setup costs. JIT accepts the existence of setup costs but not carrying costs and pushes for zero inventories.
• C)The traditional approach accepts the existence of both setup costs and carrying costs and attempts to find the order quantity that best balances those costs. JIT does not accept either setup costs or carrying costs and pushes for zero inventory levels.
• D)The traditional approach does not accept carrying costs or setup costs. JIT minimizes both setup and carrying costs by finding the best order quantity to balance these costs.

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Definitions:

Euros/Dollar

The exchange rate between the euro and the U.S. dollar, indicating how much one euro is worth in U.S. dollars or vice versa.

Exchange Rate

What one currency equals in terms of another currency's value.

Purchasing-Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, suggesting that exchange rates should adjust to equalize the cost of this basket between countries.

Real Exchange Rate

The speed at which an individual is able to convert the money of one nation into that of another, taking inflation into account.