CPM CPM Inventory and Materials Management 1

Question 1

Which inventory management technique classifies items into three categories (A, B, and C) based on their annual dollar value?

Accepted Answer

ABC analysis

Answer

ABC analysis categorizes inventory by annual dollar usage so purchasing managers can focus control efforts on high-value 'A' items.

Question 2

What does the term 'Economic Order Quantity' (EOQ) represent in inventory management?

Accepted Answer

The order size that minimizes total holding and ordering costs

Answer

EOQ is the optimal order size that minimizes the sum of ordering costs and inventory holding costs.

Question 3

What is 'safety stock' in inventory management?

Accepted Answer

Buffer inventory held to protect against demand or supply uncertainty

Answer

Safety stock is extra inventory held as a cushion against unexpected demand spikes or supplier delivery delays.

Question 4

Which inventory valuation method assumes the most recently received goods are sold first?

Accepted Answer

LIFO

Answer

LIFO (Last-In, First-Out) assumes the newest inventory items are used or sold before older ones.

Question 5

What is the primary goal of Just-In-Time (JIT) inventory management?

Accepted Answer

Reduce inventory carrying costs by receiving goods only as needed

Answer

JIT aims to minimize inventory on hand by synchronizing deliveries with production or use schedules, reducing carrying costs.

CPM - Certified Purchasing Manager Practice Test