Certified Supply Chain Professional CSCP Practice CSCP Internal Operations and Inventory 1 — Questions and Answers
Question 1: Which costing method assigns the most recent purchase costs to cost of goods sold, which can result in lower reported profits during periods of rising prices?
- First-In, First-Out (FIFO)
- Last-In, First-Out (LIFO) (Correct answer)
- Weighted average cost
- Standard costing
Correct answer: Last-In, First-Out (LIFO)
LIFO assigns the cost of the most recently purchased inventory to COGS first. During inflationary periods, this means higher COGS and lower taxable income, though it also results in a lower inventory valuation on the balance sheet.
Question 2: A manufacturer uses a fixed-order-quantity system. The reorder point is set at 150 units. What does this reorder point represent?
- The maximum inventory level allowed before production must stop
- The quantity ordered each time a replenishment order is placed
- The on-hand inventory level at which a new order should be triggered (Correct answer)
- The safety stock level added to average cycle stock
Correct answer: The on-hand inventory level at which a new order should be triggered
The reorder point (ROP) is the inventory level that triggers a new replenishment order. It is typically calculated as average demand during lead time plus safety stock, ensuring stock does not run out before the new order arrives.
Question 3: What is the primary distinction between push and pull production systems in internal operations?
- Push systems use kanbans while pull systems use MRP schedules
- Push systems produce based on forecasted demand; pull systems produce in response to actual customer demand (Correct answer)
- Push systems are used in make-to-order environments; pull systems in make-to-stock
- Push systems minimize WIP inventory while pull systems maximize throughput
Correct answer: Push systems produce based on forecasted demand; pull systems produce in response to actual customer demand
In a push system, production is driven by demand forecasts and scheduled in advance. In a pull system, production is triggered by actual downstream demand or consumption signals (such as kanbans), reducing overproduction and excess WIP.
Question 4: Which internal operations metric measures the percentage of time a machine or work center is available and producing compared to its total scheduled time?
- Overall Equipment Effectiveness (OEE) (Correct answer)
- Capacity utilization rate
- Takt time
- Cycle time efficiency
Correct answer: Overall Equipment Effectiveness (OEE)
OEE combines availability, performance, and quality rates into a single metric that reflects how effectively manufacturing equipment is being used relative to its full potential during scheduled production time.
Question 5: In ABC inventory classification, which category typically represents the smallest percentage of SKUs but the largest percentage of annual inventory value?
- A items (Correct answer)
- B items
- C items
- D items
Correct answer: A items
ABC analysis segments inventory by annual value. 'A' items generally represent roughly 10–20% of SKUs but account for approximately 70–80% of total annual inventory value, warranting the tightest controls and most frequent review.
Question 6: What is the purpose of safety stock in an inventory management system?
- To replace cycle stock when demand is predictably stable
- To buffer against variability in demand or supply lead times and prevent stockouts (Correct answer)
- To reduce the reorder point by compensating for excess supplier capacity
- To lower carrying costs by reducing average on-hand inventory
Correct answer: To buffer against variability in demand or supply lead times and prevent stockouts
Safety stock is extra inventory held beyond expected demand to protect against uncertainty in demand fluctuations or supplier lead time variability. It reduces the risk of stockouts but increases carrying costs.
Certified Supply Chain Professional CSCP Practice CSCP Internal Operations and Inventory 1
Which costing method assigns the most recent purchase costs to cost of goods sold, which can result in lower reported profits during periods of rising prices?