CWLP Inventory Management & Control 2 — Questions and Answers
Question 1: Which inventory valuation method assigns the most recent purchase costs to cost of goods sold during periods of rising prices?
- FIFO
- LIFO (Correct answer)
- Weighted Average Cost
- Specific Identification
Correct answer: LIFO
LIFO (Last-In, First-Out) assigns the most recent—and typically highest—costs to COGS during inflationary periods, reducing taxable income.
Question 2: A warehouse has 500 units on hand, uses 50 units per day, and lead time is 4 days. What is the reorder point if no safety stock is carried?
- 100 units
- 200 units (Correct answer)
- 250 units
- 450 units
Correct answer: 200 units
Reorder point = daily usage × lead time = 50 × 4 = 200 units.
Question 3: What does the term 'shrinkage' refer to in warehouse inventory management?
- Seasonal demand reduction
- Inventory loss due to theft, damage, or errors (Correct answer)
- Product size reduction during storage
- Planned inventory drawdown
Correct answer: Inventory loss due to theft, damage, or errors
Shrinkage is the loss of inventory between purchase and sale due to theft, administrative errors, supplier fraud, or damage.
Question 4: Which metric measures how efficiently a warehouse converts inventory investment into sales revenue?
- Fill rate
- Inventory turnover ratio (Correct answer)
- Days on hand
- Carrying cost percentage
Correct answer: Inventory turnover ratio
Inventory turnover ratio (COGS ÷ average inventory) measures how many times inventory is sold and replaced in a period.
Question 5: In a periodic inventory system, physical counts are performed:
- After every transaction
- Only when stockouts occur
- At scheduled intervals (e.g., monthly or annually) (Correct answer)
- Continuously in real time
Correct answer: At scheduled intervals (e.g., monthly or annually)
A periodic system updates inventory records only at scheduled intervals rather than after each individual transaction.
Question 6: What is the primary purpose of safety stock in inventory management?
- To reduce ordering frequency
- To buffer against demand variability and supply uncertainty (Correct answer)
- To maximize warehouse space utilization
- To eliminate the need for cycle counts
Correct answer: To buffer against demand variability and supply uncertainty
Safety stock acts as a buffer to protect against unexpected demand spikes or supplier delivery delays.
Question 7: Which ABC analysis category typically contains the fewest SKUs but represents the highest inventory value?
- C items
- B items
- A items (Correct answer)
- D items
Correct answer: A items
A items (roughly 20% of SKUs) account for about 80% of inventory value and receive the most management attention.
CWLP Inventory Management & Control 2
Which inventory valuation method assigns the most recent purchase costs to cost of goods sold during periods of rising prices?