Inventory Control Flashcards

What does the term 'safety stock' refer to in inventory management?

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.

Which inventory counting method records every transaction as it occurs to maintain a continuous, up-to-date inventory balance?

Answer: Perpetual inventory system

A perpetual inventory system updates inventory records in real time with every receipt, sale, or transfer.

A warehouse notices that 10% of its SKUs account for 70% of its total inventory value. Which inventory classification does this represent?

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.

What is the primary purpose of conducting a cycle count?

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.

Which term describes inventory that is no longer sellable or usable due to product obsolescence or expiration?

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.

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?

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.

What does 'inventory turnover ratio' measure?

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.