CPIM Inventory Management and Control 2 — Questions and Answers
Question 1: What does EOQ stand for in inventory management?
- Economic Order Quantity (Correct answer)
- Estimated Output Quality
- Efficient Order Queue
- External Order Quantity
Correct answer: Economic Order Quantity
EOQ (Economic Order Quantity) is the order quantity that minimizes the combined total of ordering and carrying costs.
Question 2: The EOQ formula minimizes the total of which two types of costs?
- Stockout costs and carrying costs
- Ordering costs and carrying costs (Correct answer)
- Setup costs and stockout costs
- Purchase costs and ordering costs
Correct answer: Ordering costs and carrying costs
EOQ balances ordering costs (which decrease per unit as order size grows) against carrying costs (which increase as more inventory is held), finding the quantity where their total is minimized.
Question 3: In a fixed-order-quantity (Q) system, what triggers a replenishment order?
- Inventory falling to a predetermined reorder point (Correct answer)
- A fixed time period elapsing
- Available production capacity
- A change in the sales forecast
Correct answer: Inventory falling to a predetermined reorder point
In a fixed-order-quantity system, a standard order for the same quantity is placed whenever the inventory level drops to the reorder point (ROP).
Question 4: What is the basic formula for the reorder point (ROP) when demand and lead time are known?
- ROP = Average daily demand × Lead time + Safety stock (Correct answer)
- ROP = EOQ ÷ Lead time
- ROP = Safety stock × Lead time
- ROP = Annual demand ÷ Order frequency
Correct answer: ROP = Average daily demand × Lead time + Safety stock
The reorder point equals average daily demand multiplied by lead time in days, plus safety stock to protect against variability during the replenishment period.
Question 5: Which lot sizing technique orders exactly the quantity needed to satisfy net requirements for each period?
- Fixed order quantity
- Lot-for-Lot (L4L) (Correct answer)
- Economic Order Quantity
- Period Order Quantity
Correct answer: Lot-for-Lot (L4L)
Lot-for-Lot (L4L) generates orders that exactly match net requirements period by period, producing no excess inventory and minimizing carrying costs.
Question 6: In a periodic review (P) inventory system, what element varies each review cycle?
- The time between reviews
- The order quantity (Correct answer)
- The reorder point
- The safety stock level
Correct answer: The order quantity
In a periodic review system, orders are placed at fixed intervals but the quantity ordered varies each cycle to bring inventory up to a predetermined target level.
Question 7: Which inventory valuation method assumes the most recently purchased items are consumed first?
- FIFO (First In, First Out)
- LIFO (Last In, First Out) (Correct answer)
- Weighted average cost
- Standard cost
Correct answer: LIFO (Last In, First Out)
LIFO (Last In, First Out) assumes the newest inventory items are used or sold first, which can affect reported cost of goods sold and inventory valuation.
CPIM Inventory Management and Control 2
What does EOQ stand for in inventory management?