CPFM Working Capital Management 3

Question 1

The Economic Order Quantity (EOQ) model minimizes the sum of which two costs?

Accepted Answer

Ordering cost and carrying cost

Answer

EOQ identifies the order size that minimizes the combined ordering and carrying (holding) costs.

Question 2

A firm offers credit terms of '2/10, net 30.' What does the '2/10' portion mean?

Accepted Answer

A 2% discount if paid within 10 days

Answer

'2/10' means the buyer may take a 2% discount if the invoice is paid within 10 days.

Question 3

Which inventory technique aims to minimize inventory by receiving goods only as they are needed in production?

Accepted Answer

Just-in-time (JIT)

Answer

Just-in-time minimizes inventory levels by synchronizing deliveries with production needs.

Question 4

In ABC inventory analysis, 'A' items are typically:

Accepted Answer

High-value items requiring tight control

Answer

'A' items represent a small number of high-value items that warrant the tightest inventory control.

Question 5

Holding safety stock primarily protects a company against:

Accepted Answer

Demand and lead-time uncertainty causing stockouts

Answer

Safety stock is a buffer held to prevent stockouts when demand or supplier lead times are uncertain.

CPFM Practice Test