Financial Management for Project Managers Inventory Management 4

Question 1

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?

Accepted Answer

49.5 units

Answer

Safety Stock = Z × σ_demand × √Lead Time = 1.65 × 15 × √4 = 1.65 × 15 × 2 = 49.5 units.

Question 2

Under which inventory system does a company place orders at fixed time intervals regardless of current stock levels?

Accepted Answer

Periodic review (P) system

Answer

The periodic review (P) system triggers orders at predetermined time intervals, with order quantity varying based on current inventory levels at review time.

Question 3

Which of the following best describes the 'bullwhip effect' in supply chain inventory management?

Accepted Answer

Small demand variations at retail amplify into large order swings upstream

Answer

The bullwhip effect occurs when small fluctuations in end-customer demand get progressively amplified as orders move upstream through the supply chain.

Question 4

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?

Accepted Answer

LIFO reports lower inventory values

Answer

Under LIFO during inflation, ending inventory retains older (lower) costs, resulting in understated balance sheet inventory values compared to FIFO.

Question 5

What is the primary purpose of a 'LIFO reserve' disclosure in financial statements?

Accepted Answer

To allow analysts to convert LIFO financials to FIFO for comparison

Answer

The LIFO reserve represents the cumulative difference between LIFO and FIFO inventory values, enabling analysts to adjust financials for cross-company comparisons.

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Practice Test

Financial Management for Project Managers Inventory Management 4