Inventory Management and Accounting Questions

inventory management quiz

Practice these questions for inventory management, analysis, costing, accounting and valuation:

Question: ABC Analysis is used in
(a) Inventory Management
(b) Receivables Management
(c) Accounting Policies
(d) Corporate Governance

Ans. (a)

Question: What is the advantage of holding inventory?
(a) Improved quality
(b) Reduced Obsolescence
(c) Reduced material handling
(d) Greater availability

Ans. (d)

Question: Inventory Turnover measures the relationship of inventory with:
(a) Average Sales
(b) Cost of Goods Sold
(c) Total Purchases
(d) Total Assets

Ans. (b)

Question: 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

Ans. (d)

Question: Inventory holding costs may include
(a) Material Purchase Cost
(b) Penalty charge for default
(c) Interest on loan
(d) None of the above

Ans. (d)

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Question: 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

Ans. (a)

Question: 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

Ans. (c)

Question: 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

Ans. (b)

Question: 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
(d) Both (a) and (c) 224

Ans. (b)

Question: 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

Ans. (c)

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Question: 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

Ans. (c)

Question: 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

Ans. (b)

Question: 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

Ans. (c)

Question: In Inventory Turnover calculation, what is taken in the numerator?
(a) Sales
(b) Cost of Goods Sold
(c) Opening Stock
(d) Closing Stock

Ans. (b)

Question: EOQ is the quantity that minimizes
(a) Total Ordering Cost
(b) Total Inventory Cost
(c) Total Interest Cost
(d) Safety Stock Level

Ans. (a)

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Question: 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

Ans. (b)

Question: The cost of not carrying sufficient inventory is known as
(a) Carrying Cost
(b) Holding Cost
(c) Total Cost
(d) Stock-out Cost

Ans. (d)

Question: What is Economic Order Quantity?
(a) Cost of an Order
(b) Cost of Stock
(c) Reorder level
(d) Optimum order size

Ans. (d)

Question: 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

Ans. (a)

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Question: 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

Ans. (a)

Question: Inventory allocated to the construction of fixed assets should be __
(a) Capitalized
(b) Expensed
(c) Reduced from value of inventory
(d) None of these

Ans. (a)

Question: 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

Ans. (b)

Question: 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

Ans. (c)

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Question: 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

Ans. (d)

Question: 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

Ans. (c)

Question: 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

Answer. (b)

Question: 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

Ans. (b)

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