Question 1

The inventory position for each item is the quantity on hand plus the quantity on order minus the quantity backordered.

Accepted Answer

The inventory position formula calculates the total inventory for an item taking into account the quantity currently available (on hand), the quantity that has been ordered but not yet received (on order), and the quantity that has been ordered but not yet fulfilled due to stockouts or other issues (backordered).

Question 2

Cross-docking or eliminating distribution centres (DCs)reduces the need for work-in-process inventory.

Accepted Answer

Cross-docking or eliminating distribution centers primarily affects finished goods and inbound materials by reducing storage time and handling, not directly impacting work-in-process inventory, which is associated with manufacturing processes.

Question 3

Ordering costs are usually expressed as a variable cost equal to a percentage of the total purchase cost of an order.

Accepted Answer

Ordering costs are typically considered fixed costs per order, not variable costs proportional to the order size. They include costs related to processing and placing an order, such as clerical work, regardless of the order size.

Question 4

The two main concerns of inventory management relate to the costs of ordering and holding inventories and the level of customer service (item availability).

Accepted Answer

This statement is true. The costs associated with ordering and holding inventories can impact a company's financial performance, while ensuring item availability can impact customer satisfaction and loyalty.

Question 5

Warehousing costs,insurance costs,and spoilage costs are all associated with holding costs.

Accepted Answer

These costs are all examples of expenses that are incurred while holding inventory, also known as holding costs.

Question 6

The overall objective of inventory management is to achieve satisfactory levels of customer service by having sufficient quantities while keeping inventory costs reasonable.

Accepted Answer

The statement is true. The main goal of inventory management is to meet customer demands by keeping enough stock on hand without incurring excessive inventory costs.

Question 7

Retail stores typically hold three types of inventory: raw materials,work-in-process,and finished goods.

Accepted Answer

Retail stores typically hold two types of inventory: work-in-process and finished goods. They do not usually hold raw materials as those are typically held by manufacturers or wholesalers.

Question 8

Inspection of goods for quality and quantity upon arrival is part of ordering cost.

Accepted Answer

Inspection of goods for quality and quantity is an activity that is carried out as part of the ordering cost. It is essential to ensure that the goods received match the specifications and requirements specified in the purchase order. This activity helps to minimize the cost of returns, reworks, and rejections due to poor quality or quantity issues. Therefore, it is an integral part of the ordering process, and the cost of inspection is included in the total ordering cost.

Question 9

The A-B-C approach involves classifying inventory items based on their unit cost.

Accepted Answer

The A-B-C approach classifies inventory items based on their importance to the business, often measured by consumption value, not just unit cost.

Question 10

In the A-B-C classification of inventory,items classified under the "A" category typically have high unit costs,but low levels for annual dollar value (ADV).

Accepted Answer

Items classified under the "A" category typically have high unit costs and high levels for annual dollar value (ADV).

Question 11

The EOQ approach minimizes the annual ordering cost of inventory.

Accepted Answer

The EOQ (Economic Order Quantity) approach aims to minimize the total annual costs of inventory, including both ordering costs and holding costs, not just the ordering costs.

Question 12

A lower inventory turnover ratio indicates more efficient use of inventories.

Accepted Answer

A lower inventory turnover ratio indicates that a company is holding onto its inventory for a longer period of time, which can lead to higher storage and holding costs, as well as potentially outdated or unsellable inventory. This is typically seen as less efficient use of inventories. Therefore, a higher inventory turnover ratio is generally preferred as it suggests that a business is efficiently managing its inventory levels and quickly moving products off the shelves.

Question 13

A fixed order quantity/reorder point model for inventory control is usually used with perpetual tracking.

Accepted Answer

The fixed order quantity/reorder point model is commonly used with perpetual tracking because it involves monitoring inventory levels in real-time and continuously updating the reorder point and order quantity based on demand changes. This allows for a more efficient and accurate inventory management system.

Question 14

An important function of inventories in manufacturing is to decouple operations.

Accepted Answer

Decoupling operations means creating some inventory between different stages of production to prevent disruptions in the production process. This allows each stage to operate at its own pace without being affected by the pace of the previous or subsequent stage. Inventory acts as a buffer between stages and helps improve efficiency and productivity in manufacturing.

Question 15

In the A-B-C classification of inventory,C items typically range from 50 to 60 percent of the number of items,but only 5 to 10 percent of the annual dollar value (ADV).

Accepted Answer

In the A-B-C classification system, C items are indeed numerous (often 50 to 60 percent of the inventory items) but represent a small portion of the annual dollar value (typically 5 to 10 percent), focusing on the principle of prioritizing inventory management efforts where they will yield the highest return.

Question 16

EOQ inventory models are primarily concerned with the timing of orders.

Accepted Answer

EOQ inventory models are concerned with determining the optimal order quantity and reorder point, while taking into account the costs of holding inventory and ordering. The timing of orders is only one aspect of this model.

Question 17

In the A-B-C approach to classify inventory,items that have high unit costs are always classified as "A" category items.

Accepted Answer

The A-B-C approach classifies inventory based on the importance of certain items to the overall inventory cost, not just the unit cost. "A" items are those that account for a significant portion of the total value, but not necessarily the highest unit cost.

Question 18

A two-bin system for inventory control eliminates the need for perpetual inventory tracking.

Accepted Answer

A two-bin system works by having two containers of a particular item, one container is the active bin while the other is the reserve bin. When the active bin runs out, it triggers the need for a replenishment order, and the reserve bin becomes the active bin. This system is simple and effective, and it reduces the need for perpetual inventory tracking.

Question 19

The principal objective of inventory management is to maximize customer service levels by ensuring items are available at all times.

Accepted Answer

The principal objective of inventory management is to balance the competing requirements of maximizing customer service levels by ensuring items are available when needed and minimizing the costs associated with holding inventory.

Question 20

Two fundamental decisions that buyers or inventory analysts must make about each item held in the inventory are the timing and size of orders.

Accepted Answer

This statement is true. Buyers or inventory analysts must decide the timing and size of orders for each item held in the inventory in order to maintain proper stock levels and meet customer demand.

Quiz 18: Inventory Management