Financial Management for Project Managers Inventory Management 2

Question 1

A project manager notices that holding costs for raw materials represent 28% of unit value annually. Which inventory strategy would most directly reduce this cost?

Accepted Answer

Implement Just-In-Time (JIT) delivery

Answer

JIT delivery minimizes on-hand inventory, directly reducing holding costs such as storage, insurance, and capital tied up in stock.

Question 2

In the Economic Order Quantity (EOQ) model, what happens to the optimal order quantity if annual demand doubles?

Accepted Answer

It increases by approximately 41%

Answer

EOQ is proportional to the square root of demand, so doubling demand multiplies EOQ by √2 ≈ 1.41, a 41% increase.

Question 3

Which inventory valuation method results in the highest net income during a period of rising prices?

Accepted Answer

FIFO

Answer

FIFO assigns lower (older) costs to COGS during rising prices, leaving higher-cost items in ending inventory and resulting in higher reported net income.

Question 4

A project has a reorder point of 500 units and an average daily usage of 50 units. What is the implied lead time in days?

Accepted Answer

10 days

Answer

Reorder Point = Average Daily Usage × Lead Time, so Lead Time = 500 ÷ 50 = 10 days.

Question 5

What does a high inventory turnover ratio relative to industry benchmarks typically indicate?

Accepted Answer

Efficient inventory management or strong sales

Answer

A high turnover ratio means inventory is sold and replaced quickly, indicating efficient operations or robust demand.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Inventory Management 2