MRP Inventory Control & Supply Chain Management 3 — Questions and Answers
Question 1: Which inventory costing method assigns the most recent purchase costs to cost of goods sold during periods of rising prices?
- FIFO
- LIFO (Correct answer)
- Weighted average
- Specific identification
Correct answer: LIFO
LIFO (Last-In, First-Out) assigns the most recently purchased (highest cost) inventory to COGS first, resulting in higher COGS and lower reported profit during inflation.
Question 2: A supply chain manager wants to reduce the total number of suppliers from 50 to 15. This strategy is known as:
- Supply chain diversification
- Supplier consolidation (Correct answer)
- Vertical integration
- Outsourcing
Correct answer: Supplier consolidation
Supplier consolidation reduces the supplier base to gain leverage, simplify relationships, and potentially secure volume discounts.
Question 3: What does 'fill rate' measure in inventory management?
- The percentage of warehouse space occupied
- The percentage of customer demand met from available stock (Correct answer)
- The speed at which items are received at the dock
- The ratio of fast-moving to slow-moving SKUs
Correct answer: The percentage of customer demand met from available stock
Fill rate measures the proportion of customer orders or demand that can be satisfied immediately from on-hand inventory without backorders or lost sales.
Question 4: In supply chain risk management, what is a 'single-source' risk?
- Relying on one warehouse location
- Purchasing all of a critical component from one supplier (Correct answer)
- Using only one transportation carrier
- Selling through a single distribution channel
Correct answer: Purchasing all of a critical component from one supplier
Single-source risk occurs when a company depends on a single supplier for a critical component, making it vulnerable if that supplier experiences disruptions.
Question 5: Which metric measures how efficiently a company uses its inventory by comparing cost of goods sold to average inventory?
- Gross margin
- Inventory turnover ratio (Correct answer)
- Days sales outstanding
- Return on assets
Correct answer: Inventory turnover ratio
Inventory turnover ratio = COGS ÷ Average Inventory, indicating how many times inventory is sold and replaced over a period.
Question 6: What is the primary goal of a 'postponement' strategy in supply chain management?
- Delay payment terms to suppliers
- Defer product customization until actual demand is known (Correct answer)
- Postpone supplier qualification reviews
- Delay capital investment decisions
Correct answer: Defer product customization until actual demand is known
Postponement delays final product configuration or customization until customer orders are received, reducing the risk of holding wrong finished goods inventory.
Question 7: Which of the following best describes 'landed cost' in supply chain management?
- The original purchase price from the supplier
- Total cost including purchase price, freight, duties, and handling charges (Correct answer)
- The cost after applying trade discounts
- Insurance cost during transit only
Correct answer: Total cost including purchase price, freight, duties, and handling charges
Landed cost encompasses all costs to get a product to its final destination, including purchase price, freight, insurance, customs duties, and handling fees.
MRP Inventory Control & Supply Chain Management 3
Which inventory costing method assigns the most recent purchase costs to cost of goods sold during periods of rising prices?