Inventory Management Flashcards

Which inventory cost is incurred regardless of whether items are ordered or held?

Answer: Fixed cost

Fixed costs do not vary with order quantity or inventory level and are incurred regardless of inventory decisions.

A company has average inventory of $500,000 and annual cost of goods sold of $3,000,000. What is the inventory turnover ratio?

Answer: 6

Inventory turnover = COGS / Average Inventory = $3,000,000 / $500,000 = 6.

What is the primary purpose of a min-max inventory system?

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.

Which ABC classification category typically represents the largest number of SKUs but the lowest total value?

Answer: C items

C items represent roughly 50% of SKUs but only about 5% of total inventory value.

What does 'days of supply' measure in inventory management?

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.

Which type of inventory is created due to the inability to produce all items simultaneously?

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.

A perpetual inventory system differs from a periodic system in that it:

Answer: Updates inventory records continuously with every transaction

A perpetual inventory system records each receipt and issue immediately, maintaining real-time inventory balances.