CPP CPP Inventory & Logistics Management 1 — Questions and Answers
Question 1: What is the Economic Order Quantity (EOQ)?
- The maximum stock level permitted in a warehouse
- The optimal order size that minimizes total inventory costs by balancing ordering and holding costs (Correct answer)
- The quantity discount threshold offered by suppliers
- The average monthly consumption rate for an item
Correct answer: The optimal order size that minimizes total inventory costs by balancing ordering and holding costs
EOQ is the formula-derived order quantity that minimizes the combined costs of placing orders and holding inventory.
Question 2: What is 'safety stock' in inventory management?
- Hazardous materials stored in a segregated area
- Extra inventory held as a buffer against demand variability or supply delays (Correct answer)
- Stock reserved exclusively for priority customers
- Inventory set aside for annual audit purposes
Correct answer: Extra inventory held as a buffer against demand variability or supply delays
Safety stock is buffer inventory maintained above expected demand to prevent stockouts caused by unexpected demand surges or supply chain delays.
Question 3: What does 'ABC analysis' categorize in inventory management?
- Supplier performance ratings into three tiers
- Inventory items by value and usage frequency to prioritize management efforts (Correct answer)
- Product defect rates by category
- Warehouse bin locations by zone
Correct answer: Inventory items by value and usage frequency to prioritize management efforts
ABC analysis classifies inventory into three groups—A (high value), B (medium value), C (low value)—to focus control and attention where it delivers the most benefit.
Question 4: What is the 'reorder point' in inventory management?
- The maximum allowable inventory level for a given item
- The inventory level at which a new purchase order should be placed to avoid a stockout (Correct answer)
- The minimum order quantity required by a supplier
- The threshold at which obsolete stock is written off
Correct answer: The inventory level at which a new purchase order should be placed to avoid a stockout
The reorder point is the on-hand inventory level that triggers a new order, calculated from lead time demand plus safety stock.
Question 5: What does FIFO stand for in inventory valuation?
- First In, First Out (Correct answer)
- Fixed Inventory, Fixed Output
- Forecast Inventory From Orders
- Freight In, Freight Out
Correct answer: First In, First Out
FIFO (First In, First Out) is an inventory costing method where the oldest units purchased are assumed to be the first ones sold or used.
Question 6: What is 'cycle counting' in inventory management?
- Counting all inventory items once per calendar year
- Continuously counting a rotating subset of inventory items to maintain ongoing accuracy without a full shutdown (Correct answer)
- Tracking inventory movement through each production cycle
- Recording stock levels at the close of every sales cycle
Correct answer: Continuously counting a rotating subset of inventory items to maintain ongoing accuracy without a full shutdown
Cycle counting involves regularly counting a small subset of items on a rotating schedule to maintain inventory accuracy without disrupting daily operations.
CPP CPP Inventory & Logistics Management 1
What is the Economic Order Quantity (EOQ)?