Inventory Management: Master Inventory Control, Valuation, and Optimization

Question 1

Which inventory control system relies on periodic physical counts to determine inventory levels?

Accepted Answer

Periodic inventory system

Answer

Perpetual inventory system

Answer

Just-in-time inventory system

Answer

First-in, First-out (FIFO) inventory system

Question 2

Which of the following is NOT a potential benefit of using an inventory optimization technique?

Accepted Answer

Extended lead times

Answer

Lower inventory carrying costs

Answer

Improved customer satisfaction

Answer

Increased production efficiency

Question 3

What is the primary purpose of maintaining a safety stock level?

Accepted Answer

To mitigate the risk of stockouts due to unexpected demand or supply disruptions

Answer

To reduce the likelihood of production delays

Answer

To minimize inventory holding expenses

Answer

To enhance customer service levels

Question 4

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

Accepted Answer

Periodic systems require a physical count, unlike perpetual systems.

Answer

Periodic systems rely on real-time data, while perpetual systems use historical data.

Answer

Perpetual systems are inherently more accurate than periodic systems.

Answer

There is no fundamental difference between the two systems.

Question 5

Which inventory optimization technique is based on the principle of minimizing the total cost of inventory?

Accepted Answer

Economic Order Quantity (EOQ)

Answer

Material Requirements Planning (MRP)

Answer

Just-in-Time (JIT)

Answer

Safety Stock

Question 6

What financial reporting implication arises from using the LIFO inventory valuation method during a period of rising prices?

Accepted Answer

Understatement of inventory value

Answer

Overstatement of inventory value

Answer

No impact on inventory value

Answer

Depreciation of inventory value

Question 7

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

Accepted Answer

Buffer against unexpected demand increases or supply disruptions

Answer

Reduce risk of production delays

Answer

Minimize inventory carrying costs

Answer

Enhance customer satisfaction

Question 8

FIFO, LIFO, and WAC are commonly used methods for:

Accepted Answer

Inventory valuation

Answer

Inventory optimization

Answer

Inventory control

Answer

Demand forecasting

Question 9

The economic order quantity (EOQ) model is primarily used to determine:

Accepted Answer

The optimal quantity to order

Answer

The safety stock level

Answer

The lead time for inventory

Answer

The carrying cost per unit

Question 10

ABC analysis is a technique primarily used to:

Accepted Answer

Classify inventory items based on their value

Answer

Determine the optimal inventory levels

Answer

Forecast future demand

Answer

Monitor inventory performance

Question 11

Improved: Which inventory control system maintains accurate inventory levels using a continuous record-keeping system?

Accepted Answer

Perpetual inventory system

Answer

Fixed-order quantity system

Answer

Material requirements planning (MRP)

Answer

Just-in-time (JIT) system

Question 12

Improved: Which inventory optimization technique prioritizes maintaining an appropriate level of safety stock to cushion against demand fluctuations?

Accepted Answer

Safety stock management

Answer

Economic order quantity (EOQ)

Answer

Vendor-managed inventory (VMI)

Answer

Materials resource planning (MRP)

Question 13

Improved: Which factor is excluded from the Economic Order Quantity (EOQ) formula?

Accepted Answer

Discount rate

Answer

Ordering cost

Answer

Carrying cost

Answer

Demand rate

Question 14

Improved: In a just-in-time (JIT) inventory system, the responsibility for delivering inventory to the customer facility lies with the:

Accepted Answer

Supplier

Answer

Customer

Answer

Third-party logistics provider

Answer

Manufacturer

Question 15

Improved: Which advantage is associated with a periodic inventory system?

Accepted Answer

Lower implementation cost compared to perpetual systems

Answer

Higher accuracy of inventory records

Answer

Less labor-intensive

Answer

Real-time inventory visibility

Question 16

Improved: Which inventory optimization technique classifies inventory items into groups based on their demand patterns?

Accepted Answer

ABC analysis

Answer

Safety stock management

Answer

Vendor-managed inventory (VMI)

Answer

Materials resource planning (MRP)

Question 17

Improved: Which key performance indicator (KPI) measures the efficiency of inventory management by comparing inventory value to sales revenue?

Accepted Answer

Inventory turnover ratio

Answer

Average days of inventory on hand

Answer

Inventory carrying cost ratio

Answer

Inventory shrinkage percentage

Question 18

Improved: In the LIFO (last-in, first-out) inventory valuation method, the cost of goods sold is calculated based on the cost of the:

Accepted Answer

Newest inventory items

Answer

Oldest inventory items

Answer

Average of all inventory items

Answer

Specifically identified inventory items

Question 19

Improved: Which inventory optimization technique integrates material planning and production scheduling to optimize resource allocation?

Accepted Answer

Materials resource planning (MRP)

Answer

Safety stock management

Answer

Economic order quantity (EOQ)

Answer

Vendor-managed inventory (VMI)

Question 20

Which inventory valuation method adheres to the assumption that the oldest inventory units are sold first?

Accepted Answer

First-In, First-Out (FIFO)

Answer

Last-In, First-Out (LIFO)

Answer

Weighted Average

Answer

Specific Identification

Question 21

What is the fundamental objective of inventory management?

Accepted Answer

Precisely align supply and demand

Answer

Maximize inventory levels at all times

Answer

Minimize inventory levels and carrying costs

Answer

Guarantee product availability for customers

Question 22

What is a key distinction between cyclical and seasonal inventory fluctuations?

Accepted Answer

Cyclical fluctuations arise from economic conditions, while seasonal fluctuations stem from consumer demand patterns.

Answer

Cyclical fluctuations are predictable and recurring, while seasonal fluctuations are unpredictable and irregular.

Answer

Cyclical fluctuations exhibit significant amplitude changes, while seasonal fluctuations exhibit minimal amplitude changes.

Answer

There is no meaningful distinction between cyclical and seasonal inventory fluctuations.

Question 23

What is the primary purpose of a safety stock, which is held in addition to the average inventory level?

Accepted Answer

To mitigate the risk of stockouts caused by unexpected surges in demand or disruptions in the supply chain

Answer

To reduce the frequency of ordering and associated transaction costs

Answer

To optimize production schedules and minimize downtime

Answer

To maximize inventory turnover and minimize holding costs

Question 24

How does inventory management influence working capital, which represents the difference between current assets and current liabilities?

Accepted Answer

Inventory management can significantly impact working capital by affecting the level of current assets, primarily inventory

Answer

Working capital has no direct impact on inventory management decisions or inventory levels

Answer

Inventory management and working capital are unrelated concepts in financial management

Answer

Working capital can influence inventory management by constraining the availability of funds for inventory purchases

Question 25

What is the primary objective of inventory optimization?

Accepted Answer

To minimize total inventory-related costs

Answer

To maximize customer satisfaction

Answer

To improve cash flow

Answer

To increase production efficiency

Question 26

What is the main difference between economic order quantity (EOQ) and safety stock?

Accepted Answer

EOQ is the optimal amount of inventory to order at a time, while safety stock is the amount of inventory held as a buffer against unexpected demand

Answer

EOQ is the total amount of inventory held, while safety stock is the minimum amount of inventory that must be maintained

Answer

EOQ is a continuous inventory system, while safety stock is a periodic inventory system

Answer

There is no difference between EOQ and safety stock

Question 27

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

Accepted Answer

Increased employee productivity

Answer

Improved customer service levels

Answer

Reduced inventory costs

Answer

Enhanced financial performance

Question 28

Which inventory optimization technique focuses on reducing the overall costs of inventory holding and ordering?

Accepted Answer

Economic Order Quantity (EOQ)

Answer

Just-in-Time (JIT)

Answer

Safety Stock

Question 29

Which inventory control system triggers replenishment orders continuously based on real-time inventory monitoring?

Accepted Answer

Continuous review system

Answer

Periodic review system

Answer

Two-bin system

Answer

Just-in-time system

Question 30

What inventory valuation method assumes that goods purchased earliest are sold first?

Accepted Answer

FIFO (First-in, First-out)

Answer

LIFO (Last-in, First-out)

Answer

Weighted average

Answer

Specific identification

Question 31

Which inventory optimization technique aims to achieve low inventory levels while maintaining or improving customer satisfaction?

Accepted Answer

Just-in-time (JIT)

Answer

Vendor-managed inventory (VMI)

Answer

Economic order quantity (EOQ)

Answer

Safety stock

Question 32

What is the fundamental objective of inventory management?

Accepted Answer

Optimize inventory levels to balance costs and customer needs

Answer

Maximize inventory levels to avoid stockouts

Answer

Minimize inventory levels to reduce storage costs

Answer

Maintain constant inventory levels throughout the year

Question 33

Which type of inventory encompasses items that are partially completed and awaiting further processing?

Accepted Answer

Work-in-progress

Answer

Raw materials

Answer

Finished goods

Answer

Supplies

Question 34

What cost component includes expenses associated with converting raw materials into finished products?

Accepted Answer

Conversion cost

Answer

Prime cost

Answer

Variable cost

Answer

Full cost

Question 35

How does effective inventory management enhance customer satisfaction and loyalty?

Accepted Answer

Minimizes stockouts and ensures product availability

Answer

Lowers prices and increases profit margins

Answer

Streamlines the supply chain and reduces lead times

Answer

Improves product quality and reduces defects

Question 36

Which of the following is NOT an ethical responsibility of organizations in inventory management?

Accepted Answer

Hoarding inventory

Answer

Avoiding overstocking

Answer

Disposing of obsolete inventory responsibly

Answer

Considering the social and environmental impact of inventory decisions

Question 37

Which of the following is NOT a primary goal of inventory management?

Accepted Answer

To maximize inventory holding costs

Answer

To optimize working capital

Answer

To improve customer service

Answer

To ensure product availability

Question 38

The Economic Order Quantity (EOQ) model determines the optimal order quantity to minimize what cost component?

Accepted Answer

Total inventory costs

Answer

Marketing expenses

Answer

Production costs

Answer

Storage costs

Question 39

The safety stock level is primarily determined by what two factors?

Accepted Answer

Lead time and demand variability

Answer

Inventory holding costs

Answer

Customer service levels

Answer

Production capacity

Question 40

The primary purpose of an inventory audit is to:

Accepted Answer

Verify the accuracy of inventory records

Answer

Reduce inventory shrinkage

Answer

Improve customer relationships

Answer

Identify potential fraud

Question 41

Which inventory management system focuses on minimizing holding costs by receiving materials just as they are needed for production?

Accepted Answer

Just-in-Time (JIT)

Answer

Economic Order Quantity (EOQ)

Answer

Materials Requirements Planning (MRP)

Answer

First-In, First-Out (FIFO)

Question 42

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

Accepted Answer

Minimize the total cost of inventory, which includes both holding and ordering costs.

Answer

Eliminate stockouts completely.

Answer

Maximize inventory turnover rate.

Question 43

Which inventory management technique emphasizes forecasting demand and planning production accordingly to meet those projections?

Accepted Answer

Materials Requirements Planning (MRP)

Answer

Just-in-Time (JIT)

Answer

ABC Analysis

Answer

Safety Stock

Question 44

A company with a high inventory turnover ratio typically indicates:

Accepted Answer

Efficient inventory management and low holding costs, suggesting strong sales and quick inventory movement.

Answer

High levels of obsolete inventory, signaling slow-moving items and potential write-offs.

Answer

Frequent stockouts, indicating insufficient inventory to meet demand.

Question 45

What is the purpose of 'safety stock' in inventory management?

Accepted Answer

To act as a buffer against unexpected demand surges or supply chain disruptions, ensuring continued operations.

Answer

To account for inventory that is considered obsolete or slow-moving.

Answer

To represent the minimum inventory level necessary to meet immediate customer needs.

Question 46

Which of the following is NOT a typical cost associated with holding inventory?

Accepted Answer

Marketing costs

Answer

Opportunity cost of capital, representing the potential return on funds tied up in inventory.

Answer

Storage costs, including warehouse space and utilities.

Answer

Insurance costs, covering potential losses or damages to inventory.

Question 47

During a period of rising prices, a company using the Last-In, First-Out (LIFO) method to value inventory will report:

Accepted Answer

A higher cost of goods sold and a lower net income compared to using the First-In, First-Out (FIFO) method.

Answer

A lower cost of goods sold and a higher net income compared to using the First-In, First-Out (FIFO) method.

Answer

The same cost of goods sold and net income as the First-In, First-Out (FIFO) method.

Question 48

The ABC analysis categorizes inventory items based on what criteria?

Accepted Answer

Their value and importance to the company's overall profitability.

Answer

Their production lead times.

Answer

Their physical size and weight.

Answer

Their supplier reliability.

Question 49

What is a key benefit of implementing effective inventory management practices?

Accepted Answer

Improved cash flow and working capital management, leading to increased financial flexibility.

Answer

Higher raw material costs, reducing profit margins.

Answer

Increased production delays, hindering operational efficiency.

Answer

Increased marketing expenses, impacting profitability.