CPIM Inventory Management 2 — Questions and Answers
Question 1: Which inventory cost is incurred regardless of whether items are ordered or held?
- Ordering cost
- Holding cost
- Stockout cost
- Fixed cost (Correct answer)
Correct answer: Fixed cost
Fixed costs do not vary with order quantity or inventory level and are incurred regardless of inventory decisions.
Question 2: A company has average inventory of $500,000 and annual cost of goods sold of $3,000,000. What is the inventory turnover ratio?
- 3
- 4
- 5
- 6 (Correct answer)
Correct answer: 6
Inventory turnover = COGS / Average Inventory = $3,000,000 / $500,000 = 6.
Question 3: What is the primary purpose of a min-max inventory system?
- To eliminate all safety stock
- To trigger replenishment when stock falls to the minimum level (Correct answer)
- To maximize order quantities
- To synchronize production with demand
Correct answer: To trigger replenishment when stock falls to the minimum level
In a min-max system, when inventory drops to the minimum (reorder point), an order is placed to bring stock back to the maximum level.
Question 4: Which ABC classification category typically represents the largest number of SKUs but the lowest total value?
- A items
- B items
- C items (Correct answer)
- D items
Correct answer: C items
C items represent roughly 50% of SKUs but only about 5% of total inventory value.
Question 5: What does 'days of supply' measure in inventory management?
- The time between placing and receiving an order
- How many days the current inventory will last at current demand rates (Correct answer)
- The number of days in the replenishment cycle
- The average age of inventory on hand
Correct answer: How many days the current inventory will last at current demand rates
Days of supply = On-hand inventory / Average daily demand, indicating how long current stock will last.
Question 6: Which type of inventory is created due to the inability to produce all items simultaneously?
- Safety stock
- Anticipation inventory
- Cycle stock (Correct answer)
- Pipeline inventory
Correct answer: Cycle stock
Cycle stock results from batch production or ordering, where items are made or ordered in lots rather than one at a time.
Question 7: A perpetual inventory system differs from a periodic system in that it:
- Counts inventory only at month-end
- Updates inventory records continuously with every transaction (Correct answer)
- Requires manual counting more frequently
- Uses estimated values between physical counts
Correct answer: Updates inventory records continuously with every transaction
A perpetual inventory system records each receipt and issue immediately, maintaining real-time inventory balances.
CPIM Inventory Management 2
Which inventory cost is incurred regardless of whether items are ordered or held?