CPSM Inventory Management 3

Question 1

Which inventory replenishment system triggers an order when stock falls to a predetermined level, regardless of time?

Accepted Answer

Continuous review system

Answer

A continuous (perpetual) review system monitors inventory constantly and places an order when stock hits the reorder point.

Question 2

A company experiences demand of 500 units/week with a lead time of 3 weeks and carries 1,500 units of safety stock. What is the reorder point?

Accepted Answer

3,000 units

Answer

Reorder point = (Average demand × Lead time) + Safety stock = (500 × 3) + 1,500 = 3,000 units.

Question 3

Which costing method assigns the cost of the most recently purchased inventory to cost of goods sold first?

Accepted Answer

LIFO

Answer

LIFO (Last-In, First-Out) assigns the newest inventory costs to COGS, leaving older costs in ending inventory.

Question 4

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

Accepted Answer

Demand variability that amplifies upstream through the supply chain

Answer

The bullwhip effect is the phenomenon where small demand fluctuations at the retail level cause increasingly large swings in upstream orders.

Question 5

Which inventory metric measures how many times average inventory is sold and replaced over a given period?

Accepted Answer

Inventory turnover ratio

Answer

Inventory turnover ratio = COGS ÷ Average inventory, showing how often inventory cycles through in the period.

(CPSM) Certified Professional in Supply Management Practice Test