Financial Management for Project Managers Inventory Management 3

Question 1

Which inventory metric measures the number of days a company takes to sell its average inventory on hand?

Accepted Answer

Days Inventory Outstanding (DIO)

Answer

DIO (also called Days Inventory on Hand) = (Average Inventory ÷ COGS) × 365, measuring how long inventory sits before being sold.

Question 2

A project manager wants to minimize total inventory costs. At the EOQ, what is true about ordering costs and holding costs?

Accepted Answer

Ordering costs and holding costs are equal

Answer

At the EOQ, total cost is minimized precisely when annual ordering costs equal annual holding costs.

Question 3

Which scenario best describes 'phantom inventory'?

Accepted Answer

Inventory that appears in records but is missing physically

Answer

Phantom inventory refers to stock shown in the system as available but not physically present, often causing stockouts despite positive system balances.

Question 4

A company using a periodic inventory review system checks stock every 30 days. Lead time is 10 days. What is the maximum exposure period for a stockout?

Accepted Answer

40 days

Answer

In a periodic system, stockout exposure = review period + lead time = 30 + 10 = 40 days, because a shortage discovered at review still requires a full lead time to replenish.

Question 5

Which financial ratio is most directly impacted by a write-down of obsolete inventory?

Accepted Answer

Current ratio

Answer

A write-down reduces inventory (a current asset), directly lowering the current ratio (Current Assets ÷ Current Liabilities).

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Inventory Management 3