CWLP Inventory Management & Control 3 — Questions and Answers
Question 1: A company's annual demand is 12,000 units, ordering cost is $150 per order, and holding cost is $3 per unit per year. What is the Economic Order Quantity (EOQ)?
- 800 units
- 1,000 units (Correct answer)
- 1,200 units
- 1,500 units
Correct answer: 1,000 units
EOQ = √(2 × 12,000 × 150 / 3) = √1,200,000 = 1,000 units.
Question 2: Which inventory control technique uses barcode or RFID scanning after each transaction to maintain a running balance?
- Periodic review system
- Perpetual inventory system (Correct answer)
- Two-bin system
- Visual replenishment
Correct answer: Perpetual inventory system
A perpetual inventory system continuously updates records after every receipt, shipment, or adjustment in real time.
Question 3: What is 'obsolete inventory' in a warehouse context?
- Inventory that has exceeded its reorder point
- Stock that is no longer sellable due to expiration, discontinuation, or technological change (Correct answer)
- Inventory stored in overflow locations
- Products awaiting quality inspection
Correct answer: Stock that is no longer sellable due to expiration, discontinuation, or technological change
Obsolete inventory refers to items that can no longer be sold or used due to expiration, product discontinuation, or market changes.
Question 4: The two-bin replenishment system triggers a reorder when:
- Total inventory drops below EOQ
- The first bin is emptied and work begins on the second bin (Correct answer)
- Annual cycle count is completed
- The second bin is fully depleted
Correct answer: The first bin is emptied and work begins on the second bin
In a two-bin system, emptying the first bin signals replenishment while the second bin covers demand during lead time.
Question 5: Which costing method results in the same unit cost for all identical items regardless of when they were purchased?
- FIFO
- LIFO
- Weighted Average Cost (Correct answer)
- Standard Costing
Correct answer: Weighted Average Cost
Weighted Average Cost calculates one blended cost per unit by dividing total inventory cost by total units available.
Question 6: In inventory management, 'days on hand' (DOH) is calculated as:
- Average inventory ÷ daily COGS (Correct answer)
- Annual COGS ÷ average inventory
- Reorder point ÷ lead time
- Safety stock × demand rate
Correct answer: Average inventory ÷ daily COGS
Days on hand = (average inventory ÷ COGS) × 365, indicating how many days current stock will last.
Question 7: Which type of inventory count focuses on high-value or high-movement items and counts them more frequently than low-value items?
- Annual physical inventory
- Cycle counting (Correct answer)
- Spot check audit
- Blind count
Correct answer: Cycle counting
Cycle counting divides inventory into segments and counts each segment on a rotating schedule, with A items counted most frequently.
CWLP Inventory Management & Control 3
A company's annual demand is 12,000 units, ordering cost is $150 per order, and holding cost is $3 per unit per year.
What is the Economic Order Quantity (EOQ)?