Inventory Management & Control Flashcards

Which inventory valuation method assigns the most recent purchase costs to cost of goods sold during periods of rising prices?

Answer: LIFO

LIFO (Last-In, First-Out) assigns the most recent—and typically highest—costs to COGS during inflationary periods, reducing taxable income.

A warehouse has 500 units on hand, uses 50 units per day, and lead time is 4 days. What is the reorder point if no safety stock is carried?

Answer: 200 units

Reorder point = daily usage × lead time = 50 × 4 = 200 units.

What does the term 'shrinkage' refer to in warehouse inventory management?

Answer: Inventory loss due to theft, damage, or errors

Shrinkage is the loss of inventory between purchase and sale due to theft, administrative errors, supplier fraud, or damage.

Which metric measures how efficiently a warehouse converts inventory investment into sales revenue?

Answer: Inventory turnover ratio

Inventory turnover ratio (COGS ÷ average inventory) measures how many times inventory is sold and replaced in a period.

In a periodic inventory system, physical counts are performed:

Answer: At scheduled intervals (e.g., monthly or annually)

A periodic system updates inventory records only at scheduled intervals rather than after each individual transaction.

What is the primary purpose of safety stock in inventory management?

Answer: To buffer against demand variability and supply uncertainty

Safety stock acts as a buffer to protect against unexpected demand spikes or supplier delivery delays.

Which ABC analysis category typically contains the fewest SKUs but represents the highest inventory value?

Answer: A items

A items (roughly 20% of SKUs) account for about 80% of inventory value and receive the most management attention.