Entrepreneurship and Effective Small Business Management, 11e (Scarborough)
Chapter 20 Managing Inventory
1) For most retailers and wholesalers, the investment in ________ is the largest capital outlay
next to payroll.
A) office equipment, computers, etc.
B) vehicles, automobiles and trucks
C) inventory
D) taxes and licensing fees
Topic: Introduction
AACSB: Analytic Skills
2) Effective management of inventory begins with:
A) developing an accurate sales forecast.
B) setting realistic inventory turnover objectives.
C) determining what level of safety stock to maintain.
D) establishing purchasing procedures.
Topic: Introduction
AACSB: Analytic Skills
3) The 80/20 rule suggests that business owners:
A) try to exercise control 80% of the time over 20% of their inventory.
B) identify those inventory items that represent the greatest value to the business and focus
inventory control efforts on them.
C) focus on the 80% of their inventory that only produces 20% of their results in order to
improve performance.
D) try to earn 20% more out of the 80% of their inventory that isn’t producing.
Topic: Inventory Control Systems
AACSB: Analytic Skills
4) ________ inventory systems are designed to maintain a running count of the items in
inventory.
A) Partial
B) Physical
C) Perpetual
D) ABC
Topic: Perpetual Inventory Systems
AACSB: Analytic Skills
1
5) Which of the following would most likely use a perpetual inventory system?
A) A hardware store
B) A department store
C) A landscaping/greenhouse operation
D) A retailer of large appliances
Topic: Perpetual Inventory Systems
AACSB: Analytic Skills
6) Perpetual inventory systems:
A) are relatively inexpensive to use and therefore quite popular among discount retailers.
B) are not particularly effective for keeping accurate track of large, expensive items.
C) require consistent use of the inventory sheets in order to provide accurate results.
D) are the simplest and quickest to use of all inventory systems.
Topic: Perpetual Inventory Systems
AACSB: Analytic Skills
7) The computerization of cash registers has:
A) completely eliminated the need for perpetual inventory systems.
B) eliminated the need for physical inventories.
C) overcome the disadvantages of ABC inventory systems but is too expensive for most small
businesses.
D) overcome many of the disadvantages of perpetual inventory systems.
Topic: Perpetual Inventory Systems
AACSB: Use of IT
8) Which of the following functions will the typical point-of-sale system perform?
A) Computing the annual dollar usage value of every item in the inventory
B) Allowing the owner to check on the inventory level of any item listed in the database
C) Reconciling actual inventory levels with inventory levels reported by the system
D) Calculating the EOQ on any item in inventory
Topic: Perpetual Inventory Systems
AACSB: Use of IT
2
9) Combining ________ with a POS system gives a small business owner a state-of-the-art
checkout system and further extends the abilities of the POS system in the information it
provides the owner.
A) TQM
B) an EDI system
C) universal product code labels and scanners
D) an ABC system
Topic: Perpetual Inventory Systems
AACSB: Use of IT
10) A ________ system performs all the functions of a traditional cash register and maintains an
up-to-the minute inventory count.
A) POS
B) PCS
C) SPC
D) PCC
Topic: Perpetual Inventory Systems
AACSB: Use of IT
11) Computerized POS systems make it possible for entrepreneurs to use a basic ________
inventory system.
A) ABC
B) perpetual
C) visual
D) virtual
Topic: Perpetual Inventory Systems
AACSB: Analytic Skills
12) A POS system can be set up for less than ________.
A) $1,000
B) $10,000
C) $5,000
D) $15,000
Topic: Perpetual Inventory Systems
AACSB: Analytic Skills
3
13) The most common method of controlling inventory in a small business is the ________
system.
A) floor sample
B) two-bin system
C) partial
D) visual
Topic: Visual Inventory Control Systems
AACSB: Use of IT
14) The ________ method of inventory control is the least effective for ensuring accuracy and
reliability and often leads to stockouts.
A) perpetual
B) ABC
C) partial
D) visual
Topic: Visual Inventory Control Systems
AACSB: Use of IT
15) The ________ inventory control system relies on the validity of the 80/20 rule.
A) partial
B) perpetual
C) visual
D) ABC
Topic: Partial Inventory Control Systems
AACSB: Use of IT
16) The purpose of ABC inventory analysis is:
A) to help retail stores control their inventories to prevent shoplifting and employee theft.
B) to save time by only inventorying those items that produce the majority of a firm’s sales.
C) to focus inventory control efforts on items that account for the majority of sales.
D) a system to facilitate the computerization of a firm’s perpetual inventory system.
Topic: The ABC Method of Inventory Control
AACSB: Use of IT
4
17) In an ABC system of inventory control, ________ is (are) the measure of the relative
importance of an item in the company’s inventory.
A) dollar usage value
B) carrying costs
C) set-up costs
D) optimum inventory level
Topic: The ABC Method of Inventory Control
AACSB: Use of IT
18) In ABC analysis, the dollar usage value of an item is determined by:
A) its price per unit times its shrinkage rate.
B) a statistical application of the 80/20 rule.
C) POS systems.
D) its cost per unit and its sales volume.
Topic: The ABC Method of Inventory Control
AACSB: Use of IT
19) Items classified as “A” in ABC analysis should be controlled by a(n) ________ inventory
system.
A) periodic
B) perpetual
C) visual
D) ABC
Topic: The ABC Method of Inventory Control
AACSB: Analytic Skills
20) A ________ inventory control system is best suited for controlling merchandise classified as
“B” items.
A) partial
B) perpetual
C) visual
D) periodic
Topic: The ABC Method of Inventory Control
AACSB: Analytic Skills
5
21) The ABC inventory control system causes managers to:
A) not keep a large safety stock on “A” items because it ties up too much cash.
B) keep a large safety stock on “C” items because they generate the greatest revenue.
C) keep a large safety stock on “A” items.
D) keep small levels of safety stock for “C” items because they are of relatively little value.
Topic: The ABC Method of Inventory Control
AACSB: Analytic Skills
22) “C” items, in an ABC analysis:
A) are those items that account for a moderate dollar usage volume.
B) are those that are low-cost and high-volume by nature.
C) do not require detailed record keeping or inventory control.
D) should be tracked with analytical tools and frequent counts.
Topic: The ABC Method of Inventory Control
AACSB: Analytic Skills
23) By their very nature, “C” items give a firm the opportunity to:
A) keep little safety stock.
B) use minimal inventory control procedures.
C) justify the latest POS or product bar coding systems.
D) use basic analytical tools like EOQ and reorder point analysis.
Topic: The ABC Method of Inventory Control
AACSB: Analytic Skills
24) The two-bin system and the tag system of inventory control are best suited for items
classified as ________ in ABC analysis.
A) “A” items
B) perishable items
C) “C” items
D) “B” items
Topic: The ABC Method of Inventory Control
AACSB: Analytic Skills
6
25) An alternative to a two-bin system, wherever space or the type of item doesn’t fit the system,
would be a:
A) tag system.
B) punch card system.
C) physical inventory system.
D) POS system.
Topic: The ABC Method of Inventory Control
AACSB: Analytic Skills
26) A physical inventory count should be taken at least:
A) once a week.
B) once a year.
C) every six months.
D) daily.
Topic: Physical Inventory Count
AACSB: Analytic Skills
27) A periodic physical inventory count:
A) is not necessary if the business owner uses a perpetual inventory control system or has a
computerized point of sale (POS) terminal.
B) typically involves one employee and is done weekly.
C) allows the owner to evaluate the effectiveness and the accuracy of his/her inventory control
system.
D) is not necessary if the business owner uses an ABC inventory system.
Topic: Physical Inventory Count
AACSB: Analytic Skills
28) Which of the following is a part of the “just-in-time” inventory control philosophy?
A) Job tasks should be highly specialized.
B) Machinery must produce a large number of items to justify long set-up times and high costs.
C) The lower the level of inventory a manufacturer maintains, the more efficient is the
production system.
D) Long production runs of standard items are ideal.
Topic: Just-In-Time (JIT) Inventory Control Techniques
AACSB: Analytic Skills
7
29) According to your authors:
A) JIT involves the consolidation of manufacturing processes.
B) almost any change leading to more efficient inventory use can be considered a part of JIT.
C) only large companies with long manufacturing runs can benefit from the implementation of
JIT.
D) manufacturing runs need to be large to justify set-up costs in a JIT environment.
Topic: Just-In-Time (JIT) Inventory Control Techniques
AACSB: Analytic Skills
30) “Just-in-time” inventory control techniques are most successful in what type of environment?
A) Repetitive manufacturing operations where inventory levels are significant at the outset
B) Where product requirements are customized for each customer
C) Where a company changes suppliers regularly and those suppliers are independent of the
manufacturer
D) Where inventory levels have been reduced to safety stock levels
Topic: Just-In-Time (JIT) Inventory Control Techniques
AACSB: Analytic Skills
31) Companies experience a number of benefits from JIT including:
A) better customer acceptance of their products and services.
B) increased job satisfaction among employees.
C) a reduction of inventory and handling costs.
D) longer equipment life and lower maintenance costs.
Topic: Just-In-Time (JIT) Inventory Control Techniques
AACSB: Analytic Skills
32) JIT systems need two significant human elements to be successful: mutual trust and
teamwork, and:
A) an individual incentive/rewards program.
B) staff training.
C) a benefits program.
D) empowerment.
Topic: Just-In-Time (JIT) Inventory Control Techniques
AACSB: Analytic Skills
8
33) A form of inventory management used in manufacturing that stresses a harmonious
relationship with suppliers is:
A) CRM.
B) TQM.
C) efficient consumer response.
D) JIT II.
Topic: Just-In-Time II Techniques
AACSB: Use of IT
34) JIT II differs from other production improvement methods in that:
A) it requires the close cooperation of companies and their suppliers.
B) it uses teams.
C) it empowers through extensive training of employees.
D) it makes heavy use of computer technology.
Topic: Just-In-Time II Techniques
AACSB: Use of IT
35) A retail version of just-in-time inventory control is called:
A) EDI.
B) TQM.
C) efficient consumer response.
D) JIT II.
Topic: Just-In-Time II Techniques
AACSB: Analytic Skills
36) A firm’s ________ expresses the number of times per year the business sells all of its
inventory.
A) liquidity ratio
B) inventory turnover ratio
C) operating ratio
D) quick ratio
Topic: Turning Slow-Moving Inventory into Cash
AACSB: Analytic Skills
9
37) Typically, the small business owner’s response to slow-moving inventory is to:
A) hold a one-day sale.
B) mark it down to move it out and put the cash generated into fresh inventory.
C) set up bargain tables or place it in a middle-of-the-aisle display.
D) postpone marking it down until it’s too late.
Topic: Turning Slow-Moving Inventory into Cash
AACSB: Analytic Skills
38) The most common method of liquidating slow-moving merchandise is:
A) a markdown.
B) the one-day only sale.
C) quantity discounts for volume purchases.
D) an advertising blitz.
Topic: Turning Slow-Moving Inventory into Cash
AACSB: Analytic Skills
39) ________ is simply the cost per unit of an item multiplied by the annual quantity used. For
instance, the owner of a stereo shop may find that she sold 190 pairs of a popular brand of
speaker during the previous year.
A) Daily dollar usage volume
B) Quarterly dollar usage volume
C) Annual dollar usage volume
D) None of the above
Topic: The ABC Method of Inventory Control
AACSB: Analytic Skills
40) Most employee theft:
A) involves values in excess of $1,000.
B) is expensive merchandise.
C) is small amounts of cash.
D) is the equivalent of nickel and dime items.
Topic: Employee Theft
AACSB: Analytic Skills
10