CPM CPM Inventory and Materials Management 2 — Questions and Answers
Question 1: Which of the following best describes 'carrying cost' of inventory?
- The cost of placing a purchase order
- Expenses associated with holding inventory over time, including storage and obsolescence (Correct answer)
- Transportation costs from supplier to warehouse
- The cost of quality inspections on received goods
Correct answer: Expenses associated with holding inventory over time, including storage and obsolescence
Carrying (or holding) costs include storage, insurance, obsolescence, and the opportunity cost of capital tied up in inventory.
Question 2: In materials management, what does MRP stand for?
- Material Replenishment Program
- Manufacturing Requirements Plan
- Material Requirements Planning (Correct answer)
- Minimum Reorder Protocol
Correct answer: Material Requirements Planning
MRP (Material Requirements Planning) is a system that calculates the materials and components needed to manufacture a product.
Question 3: What is the purpose of a 'physical inventory count'?
- To update supplier contracts
- To verify that recorded inventory quantities match actual on-hand stock (Correct answer)
- To calculate reorder points for all SKUs
- To identify slow-moving suppliers
Correct answer: To verify that recorded inventory quantities match actual on-hand stock
A physical inventory count reconciles the actual quantities on the shelf with what is recorded in the inventory management system.
Question 4: Which metric measures how many times inventory is sold and replaced over a given period?
- Days Sales Outstanding
- Inventory turnover ratio (Correct answer)
- Fill rate
- Order cycle time
Correct answer: Inventory turnover ratio
The inventory turnover ratio indicates how efficiently inventory is managed by showing how often it is sold and restocked within a period.
Question 5: What is 'consignment inventory' in a purchasing context?
- Inventory that has been fully paid for and delivered
- Inventory held by the buyer but owned by the supplier until it is used or sold (Correct answer)
- Emergency stock purchased at premium prices
- Inventory awaiting quality inspection approval
Correct answer: Inventory held by the buyer but owned by the supplier until it is used or sold
Consignment inventory remains the supplier's property until the buyer uses it, reducing the buyer's upfront capital investment.
Question 6: What does 'cycle counting' involve in inventory management?
- Counting all inventory items at year-end
- Continuously counting a subset of inventory on a rotating schedule (Correct answer)
- Tracking inventory through each production cycle
- Calculating the EOQ for cyclic reordering
Correct answer: Continuously counting a subset of inventory on a rotating schedule
Cycle counting is an ongoing auditing process where different portions of inventory are counted on a rotating basis throughout the year.
CPM CPM Inventory and Materials Management 2
Which of the following best describes 'carrying cost' of inventory?