Consider the Following Conditions for an Item Used in the Hess

question 116

Multiple Choice

Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: 40 units
Open orders (scheduled receipts) : 100 units
Backorders: 60 units
Reorder point: 100 units
Quantity per order: 50 units
Which of the following statements best describes Hess's situation regarding inventory replenishment?

• A)No action is required,since a scheduled receipt is due to be delivered to Hess.
• B)To cover its backorders,Hess should order two lots of 50 units.
• C)Because it is incurring backorders,Hess should increase its reorder point.
• D)Hess should place an order for 50 units,since the inventory position is less than the reorder point.

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Definitions:

Adverse Selection

A situation in economics where one party in a transaction has more or better information compared to the other party, potentially leading to an inequitable outcome.

Unobservable Characteristics

Traits or factors not immediately apparent or measurable that can influence outcomes or decisions.

Unobservable Actions

Actions taken by individuals or entities that cannot be directly observed or monitored, often leading to issues of information asymmetry.

Moral Hazard

A situation in insurance and economics where one party is more likely to take risks because they do not bear the full consequences of their actions, often due to asymmetric information.