Inventory Management Flashcards
7 cards from real Financial Management for Project Managers practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Inventory Management flashcards as text
A project manager needs to calculate safety stock. Daily demand is normally distributed with a mean of 100 units and a standard deviation of 15 units. Lead time is 4 days and the desired service level requires a Z-score of 1.65. What is the safety stock?
Answer: 49.5 units
Safety Stock = Z × σ_demand × √Lead Time = 1.65 × 15 × √4 = 1.65 × 15 × 2 = 49.5 units.
Under which inventory system does a company place orders at fixed time intervals regardless of current stock levels?
Answer: Periodic review (P) system
The periodic review (P) system triggers orders at predetermined time intervals, with order quantity varying based on current inventory levels at review time.
Which of the following best describes the 'bullwhip effect' in supply chain inventory management?
Answer: Small demand variations at retail amplify into large order swings upstream
The bullwhip effect occurs when small fluctuations in end-customer demand get progressively amplified as orders move upstream through the supply chain.
A project manager is analyzing inventory on a balance sheet that uses LIFO. During inflation, how does LIFO affect balance sheet inventory values compared to FIFO?
Answer: LIFO reports lower inventory values
Under LIFO during inflation, ending inventory retains older (lower) costs, resulting in understated balance sheet inventory values compared to FIFO.
What is the primary purpose of a 'LIFO reserve' disclosure in financial statements?
Answer: To allow analysts to convert LIFO financials to FIFO for comparison
The LIFO reserve represents the cumulative difference between LIFO and FIFO inventory values, enabling analysts to adjust financials for cross-company comparisons.
A warehouse uses cross-docking for certain product lines. Which inventory cost is most significantly reduced by this approach?
Answer: Holding costs
Cross-docking transfers goods directly from inbound to outbound without storage, virtually eliminating holding costs for those items.
A project manager observes that the Gross Margin Return on Investment (GMROI) for a product line is below 1.0. What does this indicate?
Answer: The product line does not generate enough gross margin to cover inventory investment
GMROI below 1.0 means for every dollar invested in inventory, less than one dollar of gross margin is generated, indicating poor return on inventory investment.