11 Lecture

1. Which inventory costing method assumes that the first items purchased are the first ones sold? a) First-In-First-Out (FIFO) b) Last-In-First-Out (LIFO) c) Weighted Average d) Specific Identification

Answer: a) First-In-First-Out (FIFO)

2. What is the cost of goods sold formula? a) Beginning Inventory + Purchases - Ending Inventory b) Beginning Inventory - Purchases + Ending Inventory c) Beginning Inventory - Cost of Goods Sold + Ending Inventory d) Beginning Inventory + Cost of Goods Sold - Ending Inventory

Answer: d) Beginning Inventory + Cost of Goods Sold - Ending Inventory

3. Which inventory valuation method results in the highest inventory valuation during inflationary periods? a) FIFO b) LIFO c) Weighted Average d) Specific Identification

Answer: a) FIFO

4. Which of the following statements about the Economic Order Quantity (EOQ) model is true? a) It assumes that inventory ordering and holding costs are constant. b) It is a push-based inventory control system. c) It does not consider the impact of stockouts. d) It is only applicable to large organizations.

Answer: a) It assumes that inventory ordering and holding costs are constant.

5. What is the reorder point formula? a) Safety Stock + Lead Time b) Safety Stock - Lead Time c) Safety Stock x Lead Time d) Safety Stock / Lead Time

Answer: a) Safety Stock + Lead Time

6. Which inventory control system is based on the premise that inventory should arrive just when it is needed for production? a) Economic Order Quantity (EOQ) b) Just-In-Time (JIT) c) Material Requirements Planning (MRP) d) Capacity Requirements Planning (CRP)

Answer: b) Just-In-Time (JIT)

7. Which inventory classification method uses the 80/20 rule to identify the most important inventory items? a) ABC analysis b) XYZ analysis c) VED analysis d) FSN analysis

Answer: a) ABC analysis

8. Which of the following is a disadvantage of holding too much inventory? a) Increased storage costs b) Increased stockouts c) Decreased customer satisfaction d) Increased production downtime

Answer: a) Increased storage costs

9. What is the primary objective of inventory management? a) Maximize inventory turnover b) Minimize inventory costs c) Maximize customer satisfaction d) Maximize inventory accuracy

Answer: b) Minimize inventory costs

10. Which of the following is an example of a demand-based inventory control system? a) Economic Order Quantity (EOQ) b) Material Requirements Planning (MRP) c) Just-In-Time (JIT) d) Kanban

Answer: d) Kanban

1. What is the difference between perpetual and periodic inventory systems? Answer: Perpetual inventory systems continuously track inventory levels in real-time, while periodic inventory systems count inventory at regular intervals, such as weekly or monthly.

2. Why is inventory turnover ratio an important measure of inventory management efficiency? Answer: Inventory turnover ratio measures how efficiently a company is managing its inventory. A high inventory turnover ratio indicates that inventory is selling quickly, while a low ratio indicates that inventory is not selling as quickly as it should.

3. What are the benefits of using a Just-In-Time (JIT) inventory control system? Answer: Just-In-Time (JIT) inventory control systems can reduce inventory holding costs, improve cash flow, increase production efficiency, and reduce the risk of inventory obsolescence.

4. How do inventory costs impact a company's financial statements? Answer: Inventory costs, including the cost of goods sold and inventory holding costs, are deducted from a company's revenue to calculate gross profit. Inventory levels are also reported on the balance sheet as assets.

5. What is the role of safety stock in inventory management? Answer: Safety stock is the amount of inventory held to mitigate the risk of stockouts. It acts as a buffer to ensure that inventory is available when demand exceeds forecasted levels.

6. How do lead times impact inventory management? Answer: Lead times are the amount of time it takes to receive inventory after placing an order. Longer lead times require a higher safety stock to mitigate the risk of stockouts and can increase inventory holding costs.

7. What is ABC analysis, and how is it used in inventory management? Answer: ABC analysis is a method of classifying inventory based on its relative importance. It is used to identify which items should be closely monitored and which can be managed with less attention.

8. What is the difference between FIFO and LIFO inventory costing methods? Answer: FIFO (First-In-First-Out) assumes that the first items purchased are the first ones sold, while LIFO (Last-In-First-Out) assumes that the most recently purchased items are the first ones sold.

9. What is the economic order quantity (EOQ), and how is it calculated? Answer: The economic order quantity (EOQ) is the optimal order quantity that minimizes inventory holding costs and ordering costs. It is calculated by finding the quantity that minimizes the total cost of inventory.

10. How can technology improve inventory management? Answer: Technology can improve inventory management by providing real-time inventory tracking, automated ordering and receiving, and data analytics to identify trends and optimize inventory levels.

Inventory is an essential part of any business operation that deals with physical products. It refers to the stock of goods that a business holds for sale or for use in production. Proper inventory management is crucial for businesses to optimize their operations, minimize costs, and maximize profits. There are several inventory management techniques and models that businesses can use to optimize their inventory levels. The Economic Order Quantity (EOQ) model is a popular method that calculates the optimal order quantity that minimizes the total cost of inventory. The Just-In-Time (JIT) inventory control system is another technique that aims to minimize inventory holding costs by only ordering inventory when it is needed for production. ABC analysis is a method of classifying inventory based on its relative importance. It divides inventory into three categories: A, B, and C. Category A items are the most important and require close monitoring, while Category C items are less important and can be managed with less attention. Inventory turnover ratio is a key metric used to measure inventory management efficiency. It measures how quickly a company is selling its inventory and is calculated by dividing the cost of goods sold by the average inventory value. A high inventory turnover ratio indicates that inventory is selling quickly, while a low ratio indicates that inventory is not selling as quickly as it should. Inventory costs impact a company's financial statements, including the balance sheet and income statement. Inventory levels are reported as assets on the balance sheet, while the cost of goods sold is deducted from revenue to calculate gross profit on the income statement. Effective inventory management requires a balance between having enough inventory to meet demand while minimizing the costs associated with holding excess inventory. Holding too much inventory can increase storage costs, while holding too little can result in stockouts and lost sales. In conclusion, proper inventory management is crucial for businesses to operate efficiently and maximize profits. By using inventory management techniques and models, businesses can optimize their inventory levels, minimize costs, and improve their bottom line.