CPPB Inventory Management 2 — Questions and Answers
Question 1: Which inventory control technique establishes a maximum and minimum level between which stock is maintained?
- ABC Analysis
- Just-in-Time (JIT)
- Min-Max System (Correct answer)
- Economic Order Quantity (EOQ)
Correct answer: Min-Max System
The Min-Max system triggers a replenishment order when stock falls to the minimum level, ordering enough to bring it back up to the maximum.
Question 2: A physical inventory count that covers the entire warehouse at one time is referred to as a:
- Cycle count
- Spot check
- Wall-to-wall inventory (Correct answer)
- Audit sampling
Correct answer: Wall-to-wall inventory
A wall-to-wall (or complete physical) inventory involves counting every item in the facility during a single defined period, often requiring a halt to operations.
Question 3: Cycle counting differs from a full physical inventory in that cycle counting:
- Is performed only once per fiscal year
- Counts a rotating subset of items on a continuous schedule throughout the year (Correct answer)
- Requires operations to shut down during the count
- Is used exclusively for high-value Class A items
Correct answer: Counts a rotating subset of items on a continuous schedule throughout the year
Cycle counting breaks inventory into segments that are counted on a rotating basis, allowing continuous verification without disrupting operations.
Question 4: In public procurement inventory management, 'turnover rate' is best defined as:
- The rate at which suppliers are replaced during a contract period
- The number of times average inventory is sold or used within a given period (Correct answer)
- The percentage of items that expire before being used
- The frequency of physical inventory counts in a year
Correct answer: The number of times average inventory is sold or used within a given period
Inventory turnover rate measures how efficiently stock is being used by dividing the cost of goods issued by the average inventory value.
Question 5: Which of the following is an example of a carrying (holding) cost in inventory management?
- Cost of issuing a purchase order
- Freight and shipping charges from the vendor
- Warehouse space and insurance for stored goods (Correct answer)
- Price premium paid for rush delivery
Correct answer: Warehouse space and insurance for stored goods
Carrying costs include expenses directly related to holding inventory, such as storage space, utilities, insurance, and capital tied up in stock.
Question 6: Just-in-Time (JIT) inventory management is primarily designed to:
- Build large safety stock reserves to prevent stockouts
- Receive goods only as they are needed, minimizing on-hand inventory (Correct answer)
- Consolidate all purchasing into a single annual contract
- Automate purchase order generation using barcodes
Correct answer: Receive goods only as they are needed, minimizing on-hand inventory
JIT reduces inventory holding costs by scheduling deliveries to arrive precisely when needed for production or service delivery.
Question 7: When a public agency uses a consignment inventory arrangement, ownership of goods transfers to the agency:
- When the goods are received at the warehouse
- When the goods are drawn from stock and used (Correct answer)
- When the vendor submits an invoice
- When the contract is awarded to the vendor
Correct answer: When the goods are drawn from stock and used
In consignment, the vendor retains ownership until the agency actually draws and uses items, shifting financial risk back to the supplier.
CPPB Inventory Management 2
Which inventory control technique establishes a maximum and minimum level between which stock is maintained?