CPIM Sample 4 — Questions and Answers
Question 1: Which of the following best describes the difference between 'efficiency' and 'utilization' in capacity management?
- Efficiency measures actual output vs. standard output; utilization measures actual hours worked vs. available hours (Correct answer)
- Efficiency measures uptime vs. downtime; utilization measures output vs. capacity
- Efficiency is a quality measure; utilization is a throughput measure
- They are interchangeable terms for the same metric
Correct answer: Efficiency measures actual output vs. standard output; utilization measures actual hours worked vs. available hours
Efficiency compares actual output to the standard (expected) output for hours worked, while utilization compares actual hours worked to total hours available.
Question 2: A company is experiencing high levels of work-in-process (WIP) inventory. According to Little's Law, which action would MOST directly reduce WIP?
- Increasing throughput rate
- Reducing cycle time in the system (Correct answer)
- Adding more workers to the bottleneck
- Increasing batch sizes to improve efficiency
Correct answer: Reducing cycle time in the system
Little's Law states WIP = Throughput Rate × Cycle Time; reducing cycle time directly reduces WIP for a given throughput rate.
Question 3: The Sales and Operations Planning (S&OP) process is PRIMARILY designed to:
- Create detailed production schedules at the shop floor level
- Balance supply and demand at an aggregate level across the business (Correct answer)
- Manage customer orders and available-to-promise quantities
- Develop item-level replenishment plans for distribution centers
Correct answer: Balance supply and demand at an aggregate level across the business
S&OP aligns demand plans with supply capabilities at an aggregate (family/group) level, coordinating across sales, operations, finance, and executive leadership.
Question 4: In the Theory of Constraints (TOC), what is the term for the step of making the most effective use of the system's constraint?
- Identify the constraint
- Exploit the constraint (Correct answer)
- Elevate the constraint
- Subordinate everything to the constraint
Correct answer: Exploit the constraint
Exploiting the constraint means maximizing the output of the bottleneck resource without spending additional money, such as eliminating downtime and scrap at the constraint.
Question 5: Which inventory valuation method results in the HIGHEST reported profit during a period of rising prices?
- LIFO (Last In, First Out)
- FIFO (First In, First Out) (Correct answer)
- Weighted average cost
- Standard cost
Correct answer: FIFO (First In, First Out)
Under FIFO, the oldest (lowest-cost) inventory is sold first, leaving newer (higher-cost) inventory on the balance sheet, which results in lower COGS and higher reported profit during inflation.
Question 6: A supplier's 'on-time delivery' performance is measured at 85%. In a lean supply chain context, this performance level is:
- Acceptable as it exceeds the 80% industry benchmark
- Excellent because it reflects the practical limit of logistics variability
- Inadequate because JIT environments require near-perfect delivery reliability (Correct answer)
- Irrelevant if safety stock compensates for the variability
Correct answer: Inadequate because JIT environments require near-perfect delivery reliability
Lean and JIT environments depend on highly reliable supplier delivery (typically 98%+) because minimal safety stock exists to buffer against unreliability.
Question 7: The master production schedule (MPS) operates within which planning horizon relationship?
- It must extend beyond the cumulative lead time for all purchased and manufactured items (Correct answer)
- It is constrained to the current fiscal quarter
- It covers only the current week's production requirements
- It mirrors the S&OP planning horizon exactly
Correct answer: It must extend beyond the cumulative lead time for all purchased and manufactured items
The MPS planning horizon must be at least as long as the longest cumulative lead time (sum of procurement and manufacturing lead times) to ensure materials can be ordered in time.
CPIM Sample 4
Which of the following best describes the difference between 'efficiency' and 'utilization' in capacity management?