Inventory Management for Corporate Finance: A Comprehensive Guide for Juris Doctor Students

Question 1

Which of the following is not a standard method for calculating inventory cost?

Accepted Answer

Replacement cost

Answer

Average cost

Answer

First-in, first-out (FIFO)

Answer

First-in, last-out (FILO)

Question 2

The Economic Order Quantity (EOQ) formula is expressed as:

Accepted Answer

√(2DS)/H

Answer

DS/H

Answer

(DS)/H^(1/2)

Answer

H/(DS)

Question 3

What is the primary purpose of maintaining a safety stock in inventory management?

Accepted Answer

Buffer against unexpected surges in demand

Answer

Reduce inventory carrying costs

Answer

Enhance customer service levels

Answer

Increase sales revenue

Question 4

What is the key difference between a periodic inventory system and a perpetual inventory system?

Accepted Answer

Periodic systems update inventory records less frequently than perpetual systems.

Answer

Perpetual systems rely on physical counts, while periodic systems use estimates.

Answer

Periodic systems are more precise than perpetual systems.

Answer

There is no distinction between the two systems.

Question 5

How does inflation impact inventory management?

Accepted Answer

Increases inventory carrying costs

Answer

Reduces inventory carrying costs

Answer

Has no effect on inventory carrying costs

Answer

Makes demand forecasting more straightforward

Question 6

Inventory turnover refers to the:

Accepted Answer

Rate at which inventory is sold and replaced

Answer

Amount of inventory held relative to sales

Answer

Cost of holding inventory as a percentage of sales

Answer

Likelihood of experiencing stockouts

Question 7

Which inventory management technique is designed to manage perishable goods effectively?

Accepted Answer

First-expire, first-out (FEFO)

Answer

Last-expire, first-out (LEFO)

Answer

Weighted average expiration

Answer

Specific expiration identification

Question 8

ABC analysis is a technique used in inventory management to:

Accepted Answer

Classify inventory items based on their importance and value

Answer

Determine optimal inventory levels for each item

Answer

Manage inventory costs effectively

Answer

Forecast demand for each inventory item

Question 9

What is a potential disadvantage of using a just-in-time (JIT) inventory system?

Accepted Answer

No safety stock

Answer

Lower inventory holding costs

Answer

Better customer service

Answer

More production flexibility

Question 10

Which of the following is not a cost associated with inventory management?

Accepted Answer

Profitability

Answer

Ordering costs

Answer

Carrying costs

Answer

Spoilage costs

Question 11

What is the purpose of the economic order quantity (EOQ) model?

Accepted Answer

Determine the ideal inventory quantity to order at once

Answer

Establish the safety stock level

Answer

Determine inventory order lead times

Answer

Determine reorder points

Question 12

What is the primary purpose of cycle counting?

Accepted Answer

Identify and correct inventory errors

Answer

Determine on-hand physical inventory

Answer

Calculate cost of goods sold

Answer

Determine inventory turnover ratio

Question 13

Which of the following is not a benefit of inventory management?

Accepted Answer

Lower inventory turnover

Answer

Improved customer service

Answer

Reduced production costs

Answer

Increased sales revenue

Question 14

What is the purpose of the inventory turnover ratio?

Accepted Answer

Measure the rate at which inventory is sold and replaced

Answer

Measure the inventory cost relative to sales

Answer

Determine the ideal inventory level

Answer

Calculate the safety stock level

Question 15

Which of the following inventory management techniques is designed to reduce waste and improve efficiency?

Accepted Answer

Just-in-time inventory

Answer

First-in, first-out (FIFO)

Answer

Last-in, first-out (LIFO)

Answer

Weighted average cost method

Question 16

What is the primary purpose of inventory valuation?

Accepted Answer

To determine the cost of goods sold and the value of inventory on the balance sheet

Answer

To track inventory levels

Answer

To forecast future demand

Answer

To calculate inventory turnover ratios

Question 17

What is the primary purpose of inventory costing?

Accepted Answer

To determine the value of inventory on the balance sheet and calculate the cost of goods sold

Answer

To track inventory levels

Answer

To forecast future demand

Answer

To calculate inventory turnover ratios

Question 18

Analyze how external factors impact inventory management strategies and decision-making. Consider the effects of economic downturns, shifting consumer preferences, and technological advancements.

Accepted Answer

External factors can shape inventory management strategies and decision-making.

Answer

External factors have no influence on inventory management strategies.

Answer

External factors only affect the amount of inventory kept.

Answer

Technological advancements always result in higher inventory levels.

Question 19

Which of the following is NOT a benefit of effective inventory management?

Accepted Answer

Increased lead times

Answer

Reduced carrying costs

Answer

Improved customer service

Answer

Enhanced efficiency

Question 20

What is the purpose of the Economic Order Quantity (EOQ) model?

Accepted Answer

To determine the optimal order quantity that minimizes total inventory costs

Answer

To forecast future demand for a particular item

Answer

To calculate the safety stock level of an item

Answer

To determine the optimal reorder point of an item

Question 21

Which inventory costing method assumes that the most recently purchased items are sold first?

Accepted Answer

First-In, First-Out (FIFO)

Answer

Last-In, First-Out (LIFO)

Answer

Weighted Average Cost

Answer

Specific Identification

Question 22

Which of the following is a technique used to reduce inventory levels?

Accepted Answer

Just-in-time (JIT) inventory

Answer

Safety stock

Answer

Consignment inventory

Answer

Cycle counting

Question 23

Which of the following is NOT a factor considered when determining the optimal reorder point?

Accepted Answer

Production capacity

Answer

Demand rate

Answer

Lead time

Answer

Safety stock level

Question 24

Which of the following is NOT a benefit of effective inventory management?

Accepted Answer

Diminished customer satisfaction

Answer

Enhanced customer responsiveness

Answer

Reduced storage costs

Answer

Diminished risk of stockouts

Question 25

The Economic Order Quantity (EOQ) is the optimal quantity of inventory to order at a time to minimize total inventory costs. Which of the following factors is NOT considered in the EOQ equation?

Accepted Answer

Delivery time

Answer

Holding cost per unit

Answer

Demand per unit time

Answer

Unit cost

Question 26

A company's inventory turnover ratio is 5. This indicates that:

Accepted Answer

The company sells its entire inventory 5 times per year

Answer

The company has 5 months' worth of inventory on hand

Answer

The company's inventory costs are 5% of its revenue

Question 27

Which of the following is a major challenge in inventory management?

Accepted Answer

Accurately forecasting demand

Answer

Finding reliable suppliers

Answer

Disposing of obsolete inventory

Answer

Effectively storing inventory

Question 28

A company is considering implementing a vendor-managed inventory system. Which of the following is a potential disadvantage of vendor-managed inventory?

Accepted Answer

Reduced control over inventory levels

Answer

Lower inventory costs

Answer

Improved inventory accuracy

Question 29

Which of the following is a key metric used to assess the effectiveness of an inventory management system?

Accepted Answer

Inventory turnover ratio

Answer

Gross profit margin

Answer

Return on assets

Answer

Debt-to-equity ratio

Question 30

Which of the following is a primary objective of inventory management?

Accepted Answer

Satisfy customer demand at minimum cost

Answer

Eliminate all waste

Answer

Maximize inventory levels

Question 31

What is the primary purpose of holding safety stock?

Accepted Answer

To act as a buffer against unexpected variations in demand or supply

Answer

To fully eliminate the risk of stockouts

Answer

To minimize carrying costs

Question 32

Which of the following is a benefit of using inventory management software?

Accepted Answer

Real-time inventory visibility and tracking

Answer

Increased manual labor

Answer

Higher inventory carrying costs

Answer

Reduced accuracy

Question 33

What are the three main components of inventory holding costs?

Accepted Answer

Carrying cost, Spoilage cost, Obsolescence cost

Answer

Ordering cost, Carrying cost, Spoilage cost

Answer

Carrying cost, Obsolescence cost, Production cost

Answer

Ordering cost, Production cost, Storage cost

Question 34

What is the fundamental concept behind the economic order quantity (EOQ)?

Accepted Answer

Determining the optimal quantity of inventory to order that minimizes total inventory costs

Answer

The average amount of inventory sold per year

Answer

The maximum amount of inventory that should be stored

Question 35

Which of the following factors can contribute to inventory obsolescence?

Accepted Answer

Rapid changes in technology

Answer

Improved inventory management practices

Answer

Reduced spoilage

Answer

Increased demand

Question 36

What is the primary purpose of the ABC inventory classification method?

Accepted Answer

To categorize inventory items based on their relative importance, allowing for focused management

Answer

To determine the optimal safety stock level

Answer

To calculate the economic order quantity

Question 37

Which of the following is a quantitative tool used to determine optimal inventory levels?

Accepted Answer

Economic Order Quantity (EOQ) model

Answer

Just-in-Time (JIT) system

Answer

First-In, First-Out (FIFO) method

Answer

Safety Stock levels

Question 38

Distinguish between safety stock and buffer stock in inventory management:

Accepted Answer

Safety stock protects against demand fluctuations, while buffer stock protects against supply disruptions.

Answer

Only safety stock is used in modern inventory management.

Answer

They are two terms for the same concept.

Question 39

Which of the following is NOT a category of inventory cost?

Accepted Answer

Opportunity cost

Answer

Ordering cost

Answer

Transportation cost

Answer

Holding cost

Question 40

What is the purpose of calculating an inventory turnover ratio?

Accepted Answer

To measure the efficiency of inventory management

Answer

To forecast future demand

Answer

To calculate the carrying cost of inventory

Answer

To determine the optimal inventory level

Question 41

Which inventory valuation method assumes that the first items purchased are the first to be sold?

Accepted Answer

First-In, First-Out (FIFO)

Answer

Specific Identification

Answer

Weighted Average Cost

Answer

Last-In, First-Out (LIFO)

Question 42

What is a key benefit of implementing a Just-in-Time (JIT) inventory system?

Accepted Answer

Reduced inventory holding costs

Answer

Simplified inventory management procedures

Answer

Increased production flexibility

Answer

Enhanced customer service levels

Question 43

How does forecasting contribute to effective inventory management?

Accepted Answer

Predicting future demand to optimize inventory levels and minimize costs

Answer

Eliminating the need for safety stock

Answer

Determining the appropriate inventory valuation method

Question 44

Which inventory management approach strives to maintain a steady level of inventory?

Accepted Answer

Just-in-Time (JIT)

Answer

Materials Requirement Planning (MRP)

Answer

Safety Stock

Answer

Economic Order Quantity (EOQ)

Question 45

What is the primary objective of inventory management?

Accepted Answer

Minimize total inventory-related costs

Answer

Ensure uninterrupted production

Answer

Enhance customer satisfaction levels

Answer

Maximize inventory turnover ratio

Question 46

Which inventory model incorporates demand as a random variable?

Accepted Answer

Newsboy Model

Answer

EOQ Model

Answer

ABC Analysis

Answer

MRP Model

Question 47

What type of inventory includes raw materials employed in production processes?

Accepted Answer

Raw Materials Inventory

Answer

Safety Stock Inventory

Answer

Work-in-Process Inventory

Answer

Finished Goods Inventory

Question 48

Which technique categorizes inventory items based on their significance and usage?

Accepted Answer

ABC Analysis

Answer

VED Analysis

Answer

F&G Analysis

Answer

XYZ Analysis

Question 49

What is the function of a reorder point?

Accepted Answer

To trigger the placement of a new inventory order

Answer

To calculate EOQ

Answer

To set the maximum inventory level

Answer

To adjust carrying costs

Question 50

Define Economic Order Quantity (EOQ).

Accepted Answer

Optimal quantity to order to minimize total inventory costs

Answer

Average inventory level over a specific period

Answer

Highest inventory level that can be held