CLA Inventory Control 2 — Questions and Answers
Question 1: What does the term 'safety stock' refer to in inventory management?
- Stock held only for seasonal demand
- Buffer inventory kept to guard against stockouts from demand or supply variability (Correct answer)
- Inventory reserved for quality inspection
- Overstock items awaiting return to supplier
Correct answer: Buffer inventory kept to guard against stockouts from demand or supply variability
Safety stock is extra inventory maintained to prevent stockouts caused by unpredictable demand fluctuations or supply delays.
Question 2: Which inventory counting method records every transaction as it occurs to maintain a continuous, up-to-date inventory balance?
- Periodic inventory system
- Perpetual inventory system (Correct answer)
- Cycle count system
- Annual physical count
Correct answer: Perpetual inventory system
A perpetual inventory system updates inventory records in real time with every receipt, sale, or transfer.
Question 3: A warehouse notices that 10% of its SKUs account for 70% of its total inventory value. Which inventory classification does this represent?
- Class C items
- Class B items
- Class A items (Correct answer)
- Safety stock items
Correct answer: Class A items
In ABC analysis, Class A items represent the small percentage of SKUs that make up the largest portion of inventory value.
Question 4: What is the primary purpose of conducting a cycle count?
- To shut down operations and recount all inventory at once
- To verify inventory accuracy for a subset of items on a rotating basis without halting operations (Correct answer)
- To identify obsolete inventory for disposal
- To calculate reorder points for all SKUs
Correct answer: To verify inventory accuracy for a subset of items on a rotating basis without halting operations
Cycle counting allows ongoing accuracy verification of inventory sections without requiring a full operational shutdown.
Question 5: Which term describes inventory that is no longer sellable or usable due to product obsolescence or expiration?
- Dead stock (Correct answer)
- Safety stock
- In-transit inventory
- Work-in-process inventory
Correct answer: Dead stock
Dead stock refers to inventory that cannot be sold or used, often because it has expired, become obsolete, or has no demand.
Question 6: A company uses the FIFO (First In, First Out) method. If older inventory costs $5/unit and newer inventory costs $7/unit, which cost is used when goods are sold?
- $7 per unit, because newer stock is more current
- $6 per unit, the average of both
- $5 per unit, because the oldest inventory is sold first (Correct answer)
- The cost depends on which bin the goods come from
Correct answer: $5 per unit, because the oldest inventory is sold first
Under FIFO, the cost of the oldest (first-in) inventory is expensed first when goods are sold.
Question 7: What does 'inventory turnover ratio' measure?
- The number of times inventory is fully sold and replaced over a period (Correct answer)
- The percentage of inventory damaged during handling
- The ratio of safety stock to average inventory
- The speed at which purchase orders are processed
Correct answer: The number of times inventory is fully sold and replaced over a period
Inventory turnover ratio indicates how many times a company sells and replenishes its inventory within a given timeframe.
CLA Inventory Control 2
What does the term 'safety stock' refer to in inventory management?