CIM CIM Inventory Costing & Valuation 2

Question 1

What does Days Inventory Outstanding (DIO) represent?

Accepted Answer

Average days inventory is held before being sold

Answer

DIO (Average Inventory ÷ COGS × 365) measures how many days on average a company holds inventory before converting it to a sale.

Question 2

Which category of inventory cost includes warehousing rent, insurance, and obsolescence?

Accepted Answer

Carrying cost

Answer

Carrying costs (holding costs) encompass all expenses incurred to store and maintain inventory, including rent, insurance, handling, and opportunity cost.

Question 3

What is the primary purpose of standard costing in inventory management?

Accepted Answer

To set predetermined cost benchmarks for budgeting and variance analysis

Answer

Standard costing establishes pre-set cost targets that are compared with actual costs to identify and investigate variances for management action.

Question 4

In inventory accounting, 'shrinkage' refers to:

Accepted Answer

Physical inventory loss due to theft, damage, or recording error

Answer

Inventory shrinkage is the discrepancy between recorded inventory quantities and actual physical counts, caused by theft, spoilage, damage, or administrative error.

Question 5

Which of the following is an example of an ordering cost?

Accepted Answer

Purchase order processing fees

Answer

Ordering costs are incurred each time a purchase order is placed and include administrative processing, communication, and receiving inspection expenses.

(CIM) Certified Inventory Manager Practice Test

(CIM) Certified Inventory Manager Practice Test

CIM CIM Inventory Costing & Valuation 2