Inventory Management Flashcards

Which inventory valuation method assumes that the most recently purchased items are the first to be used or sold?

Answer: Last In, First Out (LIFO)

LIFO (Last In, First Out) assumes the most recently acquired items are consumed or sold first, which affects cost reporting and taxes.

The Economic Order Quantity (EOQ) model is used to determine which of the following?

Answer: The optimal order quantity that minimizes total inventory costs

EOQ calculates the order quantity that minimizes the combined costs of ordering and holding inventory.

In public procurement, a 'stockout' occurs when:

Answer: Demand cannot be met due to insufficient inventory on hand

A stockout happens when current inventory is depleted and cannot fulfill a request, disrupting agency operations.

ABC analysis in inventory management classifies items primarily based on:

Answer: Annual consumption value

ABC analysis ranks items by their annual consumption value so that high-value (A) items receive the most management attention.

What is the primary purpose of safety stock in a public agency's inventory system?

Answer: To serve as a buffer against unexpected demand or supply delays

Safety stock is maintained as a cushion to prevent stockouts caused by demand variability or longer-than-expected lead times.

Which of the following best describes a 'perpetual inventory system'?

Answer: Inventory records are updated continuously with each transaction

A perpetual system updates inventory balances in real time as items are received, issued, or transferred, providing an ongoing accurate count.

The reorder point (ROP) for an inventory item is calculated using which formula?

Answer: ROP = Safety Stock + (Average Daily Usage × Lead Time)

The reorder point equals safety stock added to the product of average daily usage and the procurement lead time.