Inventory Management Flashcards

A state agency stocks road salt but faces unpredictable winter storms and long supplier lead times. Which factor should MOST increase its safety stock level?

Answer: High variability in demand and lead time

Safety stock buffers uncertainty, so greater variability in demand or lead time requires more safety stock.

Which of the following is generally included in inventory carrying (holding) costs?

Answer: Storage space, insurance, obsolescence, and cost of capital

Carrying costs cover the expense of holding stock, including space, insurance, shrinkage, obsolescence, and capital tied up.

Under Vendor-Managed Inventory (VMI), what is the supplier's primary responsibility?

Answer: Monitoring the agency's stock levels and replenishing as needed

In VMI, the supplier uses shared usage data to monitor levels and replenish stock within agreed limits.

A public works storeroom uses a min/max system with a minimum of 50 and maximum of 200 units. Stock falls to 45 units. How many units should typically be ordered?

Answer: 155 units

Once stock hits or drops below the minimum, the order brings it back to the maximum: 200 − 45 = 155.

Inventory shrinkage in a government warehouse refers to:

Answer: Loss of inventory from theft, damage, spoilage, or recording errors

Shrinkage is the unexplained difference between recorded and actual inventory caused by theft, damage, or errors.

An agency adopts just-in-time (JIT) delivery for office supplies. Which condition is MOST essential for JIT to succeed?

Answer: Reliable suppliers with consistent, short lead times

JIT minimizes on-hand stock, so it depends on dependable suppliers delivering quickly and consistently.

Which costing method assumes the oldest inventory items are issued first, making ending inventory reflect the most recent purchase prices?

Answer: FIFO (First-In, First-Out)

FIFO issues the oldest units first, so remaining inventory is valued at the newest costs.