1. Which term refers to the time between placing an order and receiving it?
A. Stock-out
B. Order point
C. Lead time Correct
D. Safety stock
Explanation
Lead time is the textbook definition of the interval between order placement and order receipt. Stock-out describes a shortage, order point is the inventory level that triggers an order, and safety stock is buffer inventory; none of these capture the elapsed-time concept.
2. Which type of inventory cost includes costs paid for storage space?
A. Carrying Correct
B. Ordering
C. Stock-out
D. Purchase
Explanation
Carrying (or holding) costs explicitly embrace every expense required to keep inventory in the building: rent, utilities, insurance, security, and opportunity cost of capital. Ordering costs are the administrative costs of placing orders, stock-out costs are penalty costs from shortages, and purchase cost is the invoice price of the goods themselves.
3. A sporting-goods store relies on a perpetual inventory system. What is one drawback of this system?
A. A significant initial investment of financial capital Correct
B. A costly plan of regular system maintenance
C. A need for physical counting to determine inventory levels
D. Reduced flexibility with supplier replenishment
Explanation
Perpetual systems require scanners, RFID or POS integration, database licences and networking infrastructure up-front; that capital outlay can be large for a small retailer. Maintenance is ongoing but not necessarily 'costly', physical counts are still needed for audit but are not the primary drawback, and supplier flexibility is unrelated.
4. What is one of the four broad categories of inventory costs?
A. Sunk costs
B. Ordering costs Correct
C. Depreciation costs
D. Selling costs
Explanation
The four standard cost groups are ordering, carrying, stock-out and purchase (sometimes stock-out is split into back-order and lost-sales). Ordering costs are the clerical, freight and receiving expenses incurred every time an order is placed. Sunk, depreciation and selling costs are not inventory-specific categories.
5. Which inventory model balances ordering cost and carrying cost to find the lowest total cost?
A. Fixed-interval model
B. Economic production quantity
C. Economic order quantity Correct
D. Quantity-discount model
Explanation
The EOQ formula Q*=√(2DS/H) explicitly minimises the sum of annual ordering cost (DS/Q) and annual carrying cost (HQ/2). EPQ relaxes the instantaneous-receipt assumption, quantity-discount models add price breaks, and fixed-interval models use time rather than quantity triggers.