CLA Inventory Control 3 — Questions and Answers
Question 1: Which of the following best describes the Economic Order Quantity (EOQ) model?
- The maximum amount of inventory a warehouse can store
- The order quantity that minimizes total ordering and holding costs (Correct answer)
- The quantity needed to meet one month of demand
- The minimum order quantity required by a supplier
Correct 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.
Question 2: What is 'lead time' in the context of inventory replenishment?
- The time it takes to train a new warehouse employee
- The time between placing an order and receiving the goods (Correct answer)
- The time required to pack and ship an order to a customer
- The scheduled maintenance window for warehouse equipment
Correct 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.
Question 3: A distribution center implements a min-max inventory system. What does the 'min' level represent?
- The maximum quantity to order at one time
- The target inventory level after replenishment
- The stock level that triggers a replenishment order (Correct answer)
- The minimum number of suppliers required
Correct 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.
Question 4: Which inventory valuation method assumes the most recently purchased items are sold first?
- FIFO
- LIFO (Correct answer)
- Weighted average cost
- Specific identification
Correct answer: LIFO
LIFO (Last In, First Out) assumes the most recently acquired inventory is sold or used before older stock.
Question 5: What is a primary disadvantage of carrying excess inventory?
- It reduces customer service levels
- It increases holding costs such as storage, insurance, and obsolescence risk (Correct answer)
- It shortens the replenishment lead time
- It lowers the reorder point
Correct 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.
Question 6: In a just-in-time (JIT) inventory system, what is the primary goal?
- Maintain large safety stocks to prevent any stockouts
- Receive inventory exactly when needed to minimize holding costs (Correct answer)
- Order inventory in large batches to reduce per-unit costs
- Keep inventory levels constant regardless of demand
Correct 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.
Question 7: Which document is used to record the receipt of goods into a warehouse and verify the shipment against the purchase order?
- Bill of lading
- Receiving report (Correct answer)
- Pick list
- Invoice
Correct answer: Receiving report
A receiving report documents what inventory was actually received and is used to confirm accuracy against the purchase order.
CLA Inventory Control 3
Which of the following best describes the Economic Order Quantity (EOQ) model?