Q.1 Which of the following best describes inventory management?
Planning and controlling the stock of goods
Promoting sales of finished products
Managing employee performance
Determining product pricing
Explanation - Inventory management refers to planning, ordering, storing, and controlling the stock of goods to ensure availability without overstocking.
Correct answer is: Planning and controlling the stock of goods
Q.2 What does EOQ stand for in inventory management?
Economic Order Quantity
Estimated Order Quality
Effective Order Queue
Expected Output Quantity
Explanation - EOQ means Economic Order Quantity, which determines the ideal order size that minimizes total inventory cost.
Correct answer is: Economic Order Quantity
Q.3 Which type of cost increases when inventory level is too high?
Ordering cost
Carrying cost
Shortage cost
Production cost
Explanation - Carrying costs such as storage, insurance, and depreciation rise when inventory levels are high.
Correct answer is: Carrying cost
Q.4 The main objective of inventory management is to:
Maximize customer demand
Minimize total inventory cost
Increase profit margin
Expand production capacity
Explanation - Inventory management seeks to minimize total costs related to ordering, carrying, and shortage while meeting demand.
Correct answer is: Minimize total inventory cost
Q.5 Safety stock is maintained to:
Cover unexpected demand or delay in supply
Increase carrying cost
Lower production efficiency
Maintain high ordering cost
Explanation - Safety stock acts as a buffer against uncertainties in demand or lead time to prevent stockouts.
Correct answer is: Cover unexpected demand or delay in supply
Q.6 Which formula is used to calculate EOQ?
√(2DS/H)
D × S × H
D/S + H
(D+S)/H
Explanation - EOQ is calculated as √(2DS/H), where D = demand, S = ordering cost, H = carrying cost.
Correct answer is: √(2DS/H)
Q.7 Which of the following is NOT an inventory type?
Raw materials
Work-in-progress
Finished goods
Machinery
Explanation - Raw materials, WIP, and finished goods are inventories. Machinery is a fixed asset, not inventory.
Correct answer is: Machinery
Q.8 Carrying costs usually include:
Storage cost
Advertising cost
Hiring cost
Training cost
Explanation - Carrying costs involve expenses like storage, insurance, and capital tied up in inventory.
Correct answer is: Storage cost
Q.9 Reorder level is determined by:
Lead time demand
Annual demand
Carrying cost
Ordering cost
Explanation - Reorder level is set at the demand during the lead time to ensure stock replenishment before depletion.
Correct answer is: Lead time demand
Q.10 Which model is used for managing uncertain demand in inventory?
EOQ model
ABC analysis
Probabilistic model
FIFO method
Explanation - Probabilistic inventory models handle uncertain demand by incorporating probability distributions.
Correct answer is: Probabilistic model
Q.11 What does ABC analysis in inventory management classify items on?
Value of items
Size of items
Production time
Supplier type
Explanation - ABC analysis classifies inventory based on value and importance, with 'A' being high-value items.
Correct answer is: Value of items
Q.12 Stockout occurs when:
Inventory is below safety level
Inventory is too high
Production is increased
Orders are delayed
Explanation - A stockout happens when inventory runs out, usually when it falls below safety stock level.
Correct answer is: Inventory is below safety level
Q.13 Which method values inventory by assuming earliest goods purchased are sold first?
FIFO
LIFO
Weighted average
ABC
Explanation - FIFO (First-In, First-Out) assumes the oldest stock is sold before newer inventory.
Correct answer is: FIFO
Q.14 In EOQ formula, 'D' refers to:
Demand per year
Delivery cost
Discount offered
Depreciation
Explanation - In EOQ formula √(2DS/H), 'D' represents annual demand.
Correct answer is: Demand per year
Q.15 What is lead time in inventory management?
Time taken to produce goods
Time between placing and receiving an order
Time for advertising campaign
Time to train workers
Explanation - Lead time is the time interval between placing an order and receiving the inventory.
Correct answer is: Time between placing and receiving an order
Q.16 Shortage costs arise due to:
Excess stock
Stockouts
Low storage cost
High sales
Explanation - Shortage costs occur when demand cannot be met due to insufficient stock.
Correct answer is: Stockouts
Q.17 Which technique reduces ordering frequency by buying in bulk?
EOQ
JIT
ABC
LIFO
Explanation - EOQ helps in determining the optimal order size to reduce ordering frequency and costs.
Correct answer is: EOQ
Q.18 Which inventory method minimizes carrying costs?
Just-in-Time (JIT)
FIFO
ABC
Weighted average
Explanation - JIT reduces carrying costs by maintaining minimum inventory and ordering only when required.
Correct answer is: Just-in-Time (JIT)
Q.19 In ABC analysis, 'A' items are:
High-value, low-quantity
Low-value, high-quantity
Medium-value, medium-quantity
Perishable goods
Explanation - In ABC analysis, 'A' items are high-value items that need strict control.
Correct answer is: High-value, low-quantity
Q.20 Which cost is directly reduced when ordering cost decreases?
Total inventory cost
Carrying cost
Stockout cost
Production cost
Explanation - Ordering cost is a component of total inventory cost, so its reduction lowers overall cost.
Correct answer is: Total inventory cost
Q.21 Which method assumes latest purchased goods are sold first?
FIFO
LIFO
Weighted average
ABC
Explanation - LIFO (Last-In, First-Out) assumes the most recently purchased inventory is sold first.
Correct answer is: LIFO
Q.22 Carrying cost per unit per year is denoted as:
H
D
S
Q
Explanation - In EOQ formula, 'H' represents carrying cost per unit per year.
Correct answer is: H
Q.23 Which inventory technique focuses on eliminating waste?
JIT
FIFO
ABC
LIFO
Explanation - JIT eliminates waste by reducing excess stock and ordering only when necessary.
Correct answer is: JIT
Q.24 The basic EOQ model assumes:
Constant demand and lead time
Variable demand and lead time
Bulk discounts always available
Carrying cost is zero
Explanation - EOQ assumes constant demand, constant lead time, and no stockouts.
Correct answer is: Constant demand and lead time
Q.25 Which of the following is an example of ordering cost?
Clerical work cost for placing an order
Insurance on stock
Warehouse rent
Depreciation of stock
Explanation - Ordering cost includes expenses related to placing and processing purchase orders.
Correct answer is: Clerical work cost for placing an order