CPP Inventory & Supply Chain Management 2

Question 1

A company's annual demand for an item is 10,000 units, ordering cost is $50 per order, and holding cost is $2 per unit per year. What is the Economic Order Quantity (EOQ)?

Accepted Answer

707 units

Answer

EOQ = √(2DS/H) = √(2×10,000×50/2) = √500,000 ≈ 707 units.

Question 2

Which supply chain strategy involves producing goods only when a customer order is received, minimizing finished goods inventory?

Accepted Answer

Make-to-order (MTO)

Answer

Make-to-order (MTO) means production begins only after a confirmed customer order, keeping finished goods inventory near zero.

Question 3

What does the term 'bullwhip effect' describe in supply chain management?

Accepted Answer

Demand variability amplification moving upstream in the supply chain

Answer

The bullwhip effect describes how small demand fluctuations at the retail level are amplified into large order swings at the supplier level.

Question 4

A buyer calculates that a product has a holding cost rate of 25% of unit value. If the unit cost is $40, what is the annual holding cost per unit?

Accepted Answer

$10

Answer

Annual holding cost per unit = 25% × $40 = $10.

Question 5

Which inventory classification method groups items into categories A, B, and C based on annual dollar usage?

Accepted Answer

ABC analysis

Answer

ABC analysis categorizes inventory by annual dollar value, with 'A' items representing the highest value requiring closest management.

(CPP) Certified Purchasing Professional Practice Test

(CPP) Certified Purchasing Professional Practice Test

CPP Inventory & Supply Chain Management 2