Practice these questions for inventory management, analysis, costing, accounting and valuation:
ABC Analysis is used in
(a) Inventory Management
(b) Receivables Management
(c) Accounting Policies
(d) Corporate Governance
What is the advantage of holding inventory?
(a) Improved quality
(b) Reduced Obsolescence
(c) Reduced material handling
(d) Greater availability
Inventory Turnover measures the relationship of inventory with:
(a) Average Sales
(b) Cost of Goods Sold
(c) Total Purchases
(d) Total Assets
What would be the total cost of inventory, if a firm holds 200 units of a product ‘A’, where the carrying cost is $2 per unit?
(a) $202
(b) $100
(c) $198
(d) $400
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Inventory holding costs may include
(a) Material Purchase Cost
(b) Penalty charge for default
(c) Interest on loan
(d) None of the above
Which of the following mathematical expressions can be employed to compute inventory cost?
(a) Carrying cost per unit + average inventory cost
(b) Carrying cost per unit × average inventory cost
(c) Carrying cost per unit ÷ average inventory cost
(d) Carrying cost per unit – average inventory cost
From the following, which one is not included in inventory management techniques
(a) MRP
(b) DRP
(c) TQM
(d) JIT
Cost of inventory is the sum of
(a) Cost of purchase and cost of conversion
(b) Direct cost, indirect cost and other costs
(c) Cost of purchase, cost of conversion and other costs to bring the material to the present location
(d) None of these
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Which of the following is the cost of carrying an item in inventory for a specific period of time?
(a) Ordering cost
(b) Holding cost
(c) Shortage cost
(d) Stock out cost
Which of the following is true for a company which uses a continuous review inventory system?
(a) Order Interval is fixed
(b) Order Interval varies
(c) Order Quantity is fixed
In which of the following systems an item’s inventory is stored at two different locations?
(a) Optional replenishment system
(b) Base stock system
(c) Two bin systems
(d) Universal bar code system method
EOQ determines the order size when
(a) Total Order cost is Minimum
(b) number of orders is least
(c) Total inventory costs are minimal
(d) None of the above
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Inventory is generally valued as lower than
(a) Market Price and Replacement Cost
(b) Cost and Net Realizable Value
(c) Cost and Sales Value
(d) Sales Value and Profit
Cost of inventory does not include
(a) Salary of factory staff
(b) Storage cost necessary in the production process
(c) Cost of abnormal wastage
(d) None refundable taxes
In Inventory Turnover calculation, what is taken in the numerator?
(a) Sales
(b) Cost of Goods Sold
(c) Opening Stock
(d) Closing Stock
EOQ is the quantity that minimizes
(a) Total Ordering Cost
(b) Total Inventory Cost
(c) Total Interest Cost
(d) Safety Stock Level
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A firm has an inventory turnover of 6 and the cost of goods sold is 7,50,000. With better inventory management, the inventory turnover increased. This would result in:
(a) Increase in inventory by 50,000
(b) Decrease in inventory by 50,000
(c) Decrease in cost of goods sold
(d) Increase in cost of goods sold
The cost of not carrying sufficient inventory is known as
(a) Carrying Cost
(b) Holding Cost
(c) Total Cost
(d) Stock-out Cost
What is Economic Order Quantity?
(a) Cost of an Order
(b) Cost of Stock
(c) Reorder level
(d) Optimum order size
In the ABC inventory management system, class A items may require
(a) Higher Safety Stock
(b) Frequent Deliveries
(c) Periodic Inventory system
(d) Updating of inventory records
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Use of safety stock by a firm would
(a) Increase Inventory Cost
(b) Decrease Inventory Cost
(c) No effect on cost
(d) None of the above
Inventory allocated to the construction of fixed assets should be __
(a) Capitalized
(b) Expensed
(c) Reduced from value of inventory
(d) None of these
ABC Analysis is useful for analyzing the inventories:
(a) Based on their quality
(b) Based on their use and value
(c) Based on Physical Volume
(d) All of the above
Which of the following is not a benefit of carrying inventories?
(a) Reduction in ordering cost
(b) Avoiding lost sales
(c) Reducing carrying cost
(d) Avoiding Production Shortages
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Which of the following is not included in the cost of inventory?
(a) Purchase cost
(b) Transport in Cost
(c) Import Duty
(d) Selling Costs
Which of the following is not a standard method of inventory valuation?
(a) First in First out
(b) Standard Cost
(c) Average Pricing
(d) Realizable Value
The purpose of __ is to produce in such a way that there is minimum work in process and minimum stock of furnished goods in inventories.
(a) Quality circle
(b) JIT
(c) TQM
(d) None of these
Which of the following will lead to a decrease in economic order quantity?
(a) Increase in ordering cost
(b) Increase in carrying cost
(c) Increase in safety stock
(d) Increase in procurement time
To reduce inventory management costs, many companies use a system called __, which involves carrying only small inventories of parts or merchandise,often only enough for a few days of operation.
(a) limited inventory logistics
(b) supply chain management
(c) reduction-inventory management
(d) just-in-time logistics
