Inventory Control Flashcards

Which of the following best describes the Economic Order Quantity (EOQ) model?

Answer: The order quantity that minimizes total ordering and holding costs

EOQ is the formula-derived order quantity that balances ordering costs and inventory holding costs to minimize total expense.

What is 'lead time' in the context of inventory replenishment?

Answer: The time between placing an order and receiving the goods

Lead time is the elapsed time from when a purchase order is placed until the inventory arrives and is ready to use.

A distribution center implements a min-max inventory system. What does the 'min' level represent?

Answer: The stock level that triggers a replenishment order

In a min-max system, the minimum level is the reorder point — when inventory drops to this level, a replenishment order is placed.

Which inventory valuation method assumes the most recently purchased items are sold first?

Answer: LIFO

LIFO (Last In, First Out) assumes the most recently acquired inventory is sold or used before older stock.

What is a primary disadvantage of carrying excess inventory?

Answer: It increases holding costs such as storage, insurance, and obsolescence risk

Excess inventory ties up capital and incurs holding costs including warehousing, insurance, spoilage, and the risk of obsolescence.

In a just-in-time (JIT) inventory system, what is the primary goal?

Answer: Receive inventory exactly when needed to minimize holding costs

JIT aims to receive goods only as they are needed in the production or distribution process, reducing inventory carrying costs.

Which document is used to record the receipt of goods into a warehouse and verify the shipment against the purchase order?

Answer: Receiving report

A receiving report documents what inventory was actually received and is used to confirm accuracy against the purchase order.