Inventory Concepts and Classification: Master the Fundamentals of Inventory Management

Question 1

Which inventory valuation technique is likely to provide a conservative estimate of inventory value?

Accepted Answer

Last-in, First-out (LIFO)

Answer

First-in, First-out (FIFO)

Answer

Weighted-average cost

Answer

Specific identification

Question 2

ABC analysis classifies inventory items based on their:

Accepted Answer

Value

Answer

Physical characteristics

Answer

Demand

Answer

Lead time

Question 3

Which inventory control method prioritizes minimizing inventory levels while ensuring uninterrupted production?

Accepted Answer

Just-in-Time (JIT)

Answer

Economic Order Quantity (EOQ)

Answer

Safety Stock

Question 4

The ABC classification system is primarily used for:

Accepted Answer

Prioritizing inventory items based on their value and importance

Answer

Calculating the optimal reorder point for each item

Answer

Reducing inventory carrying costs

Answer

Improving customer response times

Question 5

When determining the appropriate safety stock level, which of the following factors should NOT be considered?

Accepted Answer

Current inventory holding costs

Answer

Variability in demand

Answer

Lead time for replenishment

Answer

Desired customer service level

Question 6

What is the primary cost associated with holding inventory?

Accepted Answer

Carrying cost

Answer

Ordering cost

Answer

Shortage cost

Answer

Storage cost

Question 7

Which inventory management technique employs a mathematical formula to determine the optimum order quantity?

Accepted Answer

Economic Order Quantity

Answer

ABC analysis

Answer

VED analysis

Answer

Just-in-time

Question 8

How does dependent demand differ from independent demand in inventory management?

Accepted Answer

Dependent demand is influenced by other demand, while independent demand is not.

Answer

Independent demand is influenced by other demand, while dependent demand is not.

Answer

Both demands are influenced by external factors.

Answer

Neither demand is influenced by external factors.

Question 9

What is the primary purpose of calculating the inventory turnover ratio?

Accepted Answer

Measuring inventory efficiency

Answer

Determining inventory carrying costs

Answer

Calculating the optimal safety stock level

Answer

Forecasting future demand

Question 10

Which inventory cost component represents the cost incurred when placing an order for new inventory?

Accepted Answer

Ordering cost

Answer

Carrying cost

Answer

Acquisition cost

Answer

Disposal cost

Question 11

What is the main reason for holding safety stock in inventory management?

Accepted Answer

To avoid stockouts during periods of unexpectedly high demand

Answer

To reduce the overall carrying cost of inventory

Answer

To enhance customer satisfaction levels

Answer

To optimize production schedules

Question 12

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

Accepted Answer

To minimize the total cost associated with inventory management

Answer

To maximize the rate of inventory turnover

Answer

To reduce the lead time for inventory delivery

Answer

To improve customer service levels

Question 13

What is a primary function of safety stock in inventory management?

Accepted Answer

To act as a buffer against uncertainties in demand

Answer

To eliminate the possibility of stockouts

Answer

To increase inventory turnover rates

Answer

To streamline production processes

Question 14

Which inventory classification method categorizes items based on their unit value?

Accepted Answer

ABC Analysis

Answer

VED Analysis

Answer

FNS Analysis

Answer

XYZ Analysis

Question 15

Which category of inventory cost encompasses expenses associated with holding and financing inventory?

Accepted Answer

Carrying cost

Answer

Acquisition cost

Answer

Ordering cost

Answer

Shortage cost

Question 16

Inventory maintained as a buffer to mitigate fluctuations in demand is known as:

Accepted Answer

Safety stock

Answer

Cycle inventory

Answer

Seasonal inventory

Answer

Speculative inventory

Question 17

The primary goal of the Economic Order Quantity (EOQ) model is to:

Accepted Answer

Minimize the total cost of inventory management

Answer

Maximize customer service levels

Answer

Reduce lead times

Answer

Enhance inventory accuracy

Question 18

Inventory held to respond to predictable changes in demand throughout the year is referred to as:

Accepted Answer

Seasonal inventory

Answer

Base inventory

Answer

Safety stock inventory

Answer

Speculative inventory

Question 19

The Just-in-Time (JIT) inventory approach aims to:

Accepted Answer

Minimize inventory levels and reduce waste

Answer

Maximize customer service levels

Answer

Increase production lead times

Answer

Improve inventory accuracy

Question 20

Which of the following is NOT a primary classification of inventory based on its physical state?

Accepted Answer

Safety stock

Answer

Raw materials

Answer

Work-in-progress

Answer

Finished goods

Question 21

Which of the following is excluded from the primary classifications of inventory?

Accepted Answer

Equipment

Answer

Raw materials

Answer

Work-in-process

Answer

Finished goods

Question 22

What is the primary objective of holding safety stock inventory?

Accepted Answer

Buffer against unexpected demand fluctuations

Answer

Reduce storage costs

Answer

Enhance customer loyalty

Answer

Maximize production efficiency

Question 23

Which inventory cost element encompasses depreciation expenses?

Accepted Answer

Carrying cost

Answer

Ordering cost

Answer

Holding cost

Answer

Transportation cost

Question 24

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

Accepted Answer

Determine the optimal order quantity to minimize total inventory costs

Answer

Maximize inventory levels to meet peak demand

Answer

Reduce lead times and improve supplier relationships

Answer

Forecast future demand with high accuracy

Question 25

Which inventory valuation method assumes that the items acquired most recently are sold first?

Accepted Answer

FIFO

Answer

LIFO

Answer

Average cost

Answer

Weighted average cost

Question 26

How does holding excess inventory typically impact a company's financial performance?

Accepted Answer

Increased costs and decreased profitability

Answer

Improved customer satisfaction and increased sales

Answer

Reduced production efficiency and faster lead times

Answer

Enhanced supplier relationships and higher quality

Question 27

Distinguish between independent and dependent demand in inventory management.

Accepted Answer

Independent demand is influenced by external factors, while dependent demand is influenced by internal factors

Answer

Dependent demand is influenced by external factors, while independent demand is influenced by internal factors

Answer

Both independent and dependent demand are influenced by external factors

Answer

Both independent and dependent demand are influenced by internal factors

Question 28

Identify the item that is not a recognized inventory classification method:

Accepted Answer

XYZ Analysis

Answer

ABC Analysis

Answer

VED Analysis

Question 29

What type of inventory is used to meet current demand?

Accepted Answer

Finished goods

Answer

Raw materials

Answer

Work-in-process

Answer

Safety stock

Question 30

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

Accepted Answer

Production costs (e.g., labor, materials)

Answer

Carrying costs (e.g., storage, insurance)

Answer

Ordering costs (e.g., processing purchase orders)

Answer

Replenishment costs (e.g., freight)

Question 31

What is the primary objective of an inventory turnover ratio?

Accepted Answer

To measure the efficiency of inventory management by assessing how quickly inventory is sold (or used)

Answer

To determine the average age of inventory

Answer

To forecast future inventory demand

Answer

To calculate the carrying cost of inventory

Question 32

Which inventory classification criterion is based on the physical characteristics of the inventory?

Accepted Answer

Raw materials, work-in-process, finished goods

Answer

Dependent demand, independent demand

Answer

Slow-moving, fast-moving

Answer

Critical, non-critical

Question 33

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

Accepted Answer

To provide a buffer against unexpected changes in demand or supply disruptions

Answer

To reduce carrying costs

Answer

To increase inventory turnover

Answer

To improve customer service by ensuring no stockouts

Question 34

What is the term used to describe the point at which inventory is replenished to a predetermined level?

Accepted Answer

Reorder point

Answer

Safety stock level

Answer

Economic order quantity

Answer

Lead time

Question 35

What is the fundamental goal of inventory management?

Accepted Answer

To balance the trade-off between inventory costs and customer service levels

Answer

To maximize production efficiency

Answer

To reduce lead times

Answer

To increase sales revenue

Question 36

Which of the following is not a primary type of inventory classification?

Accepted Answer

Tools and equipment

Answer

Raw materials

Answer

Finished goods

Answer

Work-in-process

Question 37

What is the primary purpose of maintaining safety stock inventory?

Accepted Answer

To protect against demand and supply uncertainties

Answer

To cater to seasonal demands

Answer

To offset lead time variations

Answer

To reduce manufacturing costs

Question 38

Which of the following is not an advantage of inventory optimization?

Accepted Answer

Potential for increased customer dissatisfaction

Answer

Improved supply chain responsiveness

Answer

Enhanced cash flow

Answer

Reduced inventory carrying costs

Question 39

What is the primary role of the inventory turnover ratio?

Accepted Answer

To evaluate the effectiveness of inventory management

Answer

To establish the ideal reorder point

Answer

To determine the carrying cost of inventory

Answer

To predict future inventory levels

Question 40

Which of the following is a central tenet of the ABC inventory classification analysis?

Accepted Answer

Annual dollar usage value

Answer

Frequency of reorder

Answer

Supplier lead time

Answer

Unit cost

Question 41

What type of inventory is primarily used to absorb unexpected fluctuations in demand?

Accepted Answer

Safety stock

Answer

Reorder stock

Answer

Reserve stock

Answer

Transit stock

Question 42

Which inventory costing method provides the most accurate cost of goods sold but is also the most complex to implement?

Accepted Answer

Specific identification

Answer

Weighted average

Answer

LIFO

Answer

FIFO

Question 43

What is the primary purpose of decoupling stock?

Accepted Answer

To buffer production stages with different lead times

Answer

To minimize inventory holding costs

Answer

To enhance customer responsiveness

Question 44

Which of the following is NOT a traditional category of inventory classification based on its physical form?

Accepted Answer

Virtual Inventory

Answer

Work-in-Process

Answer

Raw Materials

Answer

Finished Goods

Question 45

Which inventory cost element includes expenses incurred to store, maintain, and handle inventory?

Accepted Answer

Carrying Costs

Answer

Acquisition Costs

Answer

Ordering Costs

Question 46

The primary objective of an inventory control system is to ensure:

Accepted Answer

Optimum inventory levels at minimum cost

Answer

Maximum sales volume

Answer

Reduced customer complaints

Answer

Enhanced employee morale

Question 47

Which classification of inventory includes items that are in the process of being assembled or processed?

Accepted Answer

Work-in-Process

Answer

Maintenance, Repair, and Operations (MRO)

Answer

Finished Goods

Answer

Raw Materials

Question 48

The Economic Order Quantity (EOQ) model is primarily used to determine the:

Accepted Answer

Optimal order size to minimize inventory-related costs

Answer

Optimal safety stock levels

Answer

Lead time for inventory delivery

Answer

Inventory turnover ratio

Question 49

The safety stock level in inventory management refers to:

Accepted Answer

An additional quantity of inventory held as a buffer against unexpected demand or supply disruptions

Answer

The maximum amount of inventory that can be stored

Answer

The average amount of inventory on hand

Question 50

A low inventory turnover ratio typically indicates that a company:

Accepted Answer

Is holding inventory for too long

Answer

Is selling inventory too quickly

Answer

Is not managing inventory effectively

Answer

Has an optimal inventory level

Question 51

The Just-in-Time (JIT) inventory system:

Accepted Answer

Aims to reduce inventory levels and improve operational efficiency

Answer

Is feasible for all types of businesses

Answer

Requires large amounts of safety stock

Question 52

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

Accepted Answer

Increased customer wait times

Answer

Reduced inventory carrying costs

Answer

Improved customer satisfaction

Answer

Enhanced supply chain efficiency