CPPB Inventory Management 5 — Questions and Answers
Question 1: 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?
- Low unit price of salt
- High variability in demand and lead time (Correct answer)
- Availability of a cooperative contract
- Short shelf life of salt
Correct answer: High variability in demand and lead time
Safety stock buffers uncertainty, so greater variability in demand or lead time requires more safety stock.
Question 2: Which of the following is generally included in inventory carrying (holding) costs?
- Cost of preparing solicitations
- Supplier's manufacturing labor
- Bid advertising fees
- Storage space, insurance, obsolescence, and cost of capital (Correct answer)
Correct 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.
Question 3: Under Vendor-Managed Inventory (VMI), what is the supplier's primary responsibility?
- Monitoring the agency's stock levels and replenishing as needed (Correct answer)
- Approving the agency's annual budget
- Auditing the agency's procurement files
- Setting the agency's reorder policy without data sharing
Correct 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.
Question 4: 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?
- 50 units
- 150 units
- 155 units (Correct answer)
- 200 units
Correct answer: 155 units
Once stock hits or drops below the minimum, the order brings it back to the maximum: 200 − 45 = 155.
Question 5: Inventory shrinkage in a government warehouse refers to:
- Reduction in inventory due to planned budget cuts
- Downsizing the warehouse footprint
- Lower order quantities after an EOQ review
- Loss of inventory from theft, damage, spoilage, or recording errors (Correct answer)
Correct 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.
Question 6: An agency adopts just-in-time (JIT) delivery for office supplies. Which condition is MOST essential for JIT to succeed?
- Reliable suppliers with consistent, short lead times (Correct answer)
- Large on-site safety stock
- Annual single bulk purchases
- Highly unpredictable demand
Correct answer: Reliable suppliers with consistent, short lead times
JIT minimizes on-hand stock, so it depends on dependable suppliers delivering quickly and consistently.
Question 7: Which costing method assumes the oldest inventory items are issued first, making ending inventory reflect the most recent purchase prices?
- LIFO (Last-In, First-Out)
- Weighted average cost
- FIFO (First-In, First-Out) (Correct answer)
- Specific identification
Correct answer: FIFO (First-In, First-Out)
FIFO issues the oldest units first, so remaining inventory is valued at the newest costs.
