CPIM Module 5 Inventory

Which of the following inventory classifications most contributes to cycle time? Obsolete Active Excess Inactive

Active Rationale Cycle time is the time from receipt to the time of shipping.

Why will material requirements planning check for available inventory of a purchased part in an engineer-to-order environment? Because it is possible that the item was stocked at one time and is now considered non-stock Because the part may be in stock for another customer order and can be reallocated to this order Because checking for available inventory can identify inventory inaccuracies Because a previous order for the part may have left residual inventory of the item due to lot size or price break or a cancelled customer order

Because a previous order for the part may have left residual inventory of the item due to lot size or price break or a cancelled customer order Rationale If there was a minimum purchase quantity or a price break, there may have been excess inventory.

In a process industry, which of the following elements decouples the scheduling of sequential stages? Queues Inventory Kanbans Ropes

Inventory Rationale Inventories decouple the scheduling of sequential stages within a process industry.

What effect does a write-off of inventory have on a company's profit and loss statement? It decreases the cost of goods sold. It decreases the sales value. It decreases net earnings. It decreases current assets.

It decreases net earnings. Rationale Writing off inventory increases operating expenses, which decreases gross profit and therefore net earnings. It also decreases assets, but we see this in the balance sheet, not in the profit and loss statement.

Which would be a logical inventory policy for "C" items according to ABC classification? Avoid counting at all during periodic inventories. Order in bulk as infrequently as possible. Order lot-for-lot from supplier. Phase out this inventory whenever possible.

Order in bulk as infrequently as possible. Rationale Part of the APICS Dictionary, 16th edition, definition of ABC classification is as follows: "The ABC principle states that effort and money can be saved through applying looser controls to the low-dollar-volume class items than to the high-dollar-volume class items." Since the cost of carrying this inventory is very low, ordering very infrequently will minimize ordering cost. Also, since there are fewer ordering points per year, there is a risk of stockout only at those few times. (A stockout of a low-cost component could be very expensive if it prevents completing an order.)

A make-to-stock organization sells premium clothing that comes in a wide variety of sizes. What sort of inventory policy would be best for this organization? Risk pooling Ordering far in advance Placement closest to point of customer demand Postponement

Risk pooling Rationale Products that have many different SKUs, such as sizes of shirts, will generate large inventories unless inventory is centralized. Risk pooling describes a method of centralizing inventory.

What is a valid reason for carrying safety stock of a manufactured item? Safety stock is being planned for the parent item of the manufactured item. There are frequent engineering changes for this item. Cumulative lead time is longer than the item's lead time. Yields are highly variable due to process control issues.

Yields are highly variable due to process control issues. Rationale Safety stock protects against the uncertainty of supply, which would be applicable to yield variability.

Products that are close to their expiration date and cannot be sold at full price are known as: scrap. obsolete inventory. inactive inventory. distressed goods.

distressed goods. Rationale Distressed goods are products that are damaged or close to their expiration date and cannot be sold at full price.

Inventory that has been superseded by a new model and will never be used or sold at full value is defined as: surplus. distressed. inactive. obsolete.

obsolete. Rationale Obsolete inventory includes items that have met the obsolescence criteria established by the organization.

Loss caused by scrap, theft, deterioration, or evaporation is known as: yield. waste. attrition. shrinkage.

shrinkage. Rationale Shrinkage is the reduction of actual quantities of items in stock, in process, or in transit.