#1
Which of the following is an inventory costing method?
FIFO (First In, First Out)
ExplanationFIFO assumes that the oldest inventory is sold first.
#2
What is the primary objective of inventory management?
To minimize costs while maintaining adequate inventory levels
ExplanationOptimizing costs and inventory levels is the main goal of inventory management.
#3
What does the term 'Lead Time' refer to in inventory management?
The time it takes for an order to be delivered after it is placed
ExplanationLead time is the duration between placing an order and receiving it.
#4
What does the term 'Inventory Turnover Ratio' measure?
The speed at which inventory is sold and replaced
ExplanationInventory Turnover Ratio gauges how quickly inventory is cycled through.
#5
What does the Economic Order Quantity (EOQ) formula help determine?
Optimal level of inventory to order
ExplanationEOQ minimizes total inventory costs by balancing order and holding costs.
#6
What is the purpose of the ABC analysis in inventory management?
To classify inventory items based on their importance
ExplanationABC analysis prioritizes items for efficient management based on their significance.
#7
Which inventory valuation method assumes that the most recently purchased or produced items are sold first?
LIFO (Last In, First Out)
ExplanationLIFO assumes the newest items are sold before older ones.
#8
What is the purpose of a safety stock?
To ensure sufficient inventory in case of unexpected demand or supply chain disruptions
ExplanationSafety stock prevents stockouts and ensures readiness for unexpected events.
#9
What is the formula to calculate Days' Sales of Inventory (DSI) or Days' Inventory?
365 / Inventory Turnover Ratio
ExplanationDSI measures how many days it takes to sell the average inventory.
#10
What is the difference between perpetual inventory system and periodic inventory system?
Perpetual system records inventory balances continuously, while periodic system counts inventory periodically
ExplanationPerpetual system updates inventory in real-time, while periodic system does so periodically.
#11
Which of the following inventory valuation methods assumes that all units of inventory are indistinguishable?
Weighted Average Cost
ExplanationWeighted Average Cost considers all units equal in cost.
#12
What is the formula to calculate Inventory Turnover Ratio?
Cost of Goods Sold / Average Inventory
ExplanationInventory Turnover Ratio measures how quickly inventory is sold and replaced.
#13
In Activity-Based Costing (ABC), what does the 'activity cost pool' refer to?
Total costs associated with a particular activity
ExplanationActivity cost pool represents all costs linked to a specific activity in ABC.
#14
Which inventory costing method is often used in industries where the exact cost of items can be easily identified?
Specific Identification
ExplanationSpecific Identification assigns actual costs to each inventory item.
#15
What does the term 'Inventory Shrinkage' refer to in inventory management?
Loss of inventory due to theft, damage, or error
ExplanationInventory shrinkage is the loss of inventory from various causes.
#16
Which of the following costs is considered when calculating the carrying cost of inventory?
Storage costs
ExplanationCarrying cost includes expenses like storage, insurance, and handling.
#17
What does the term 'Just-In-Time (JIT)' inventory management refer to?
A system of inventory management aimed at reducing waste and increasing efficiency by receiving goods only as they are needed in the production process
ExplanationJIT minimizes inventory levels by receiving goods just in time for production.
#18
What is the significance of the Economic Production Quantity (EPQ) model in inventory management?
Determines the optimal production quantity to minimize total inventory costs
ExplanationEPQ finds the production quantity that minimizes both ordering and holding costs.