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Entrepreneurship and Effective Small Business Management, 11e, Global Edition
(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
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.
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.
4) ________ inventory systems are designed to maintain a running count of the items in
inventory.
A) Partial
B) Physical
C) Perpetual
D) ABC
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
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.
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.
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
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
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
11) Computerized POS systems make it possible for entrepreneurs to use a basic ________
inventory system.
A) ABC
B) perpetual
C) visual
D) virtual
12) A POS system can be set up for less than ________.
A) $1,000
B) $10,000
C) $5,000
D) $15,000
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
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
15) The ________ inventory control system relies on the validity of the 80/20 rule.
A) partial
B) perpetual
C) visual
D) ABC
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.
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
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.
19) Items classified as "A" in ABC analysis should be controlled by a(n) ________ inventory
system.
A) periodic
B) perpetual
C) visual
D) ABC
20) A ________ inventory control system is best suited for controlling merchandise classified as
"B" items.
A) partial
B) perpetual
C) visual
D) periodic
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.
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.
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.
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
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.
26) A physical inventory count should be taken at least:
A) once a week.
B) once a year.
C) every six months.
D) daily.
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.
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.
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.
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
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.
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.
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.
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.
35) A retail version of just-in-time inventory control is called:
A) EDI.
B) TQM.
C) efficient consumer response.
D) JIT II.
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
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.
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.
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
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.
41) A number of organizational factors encourage employee theft including:
A) being permitted to manage their own work and time schedules.
B) working with one-of-a-kind items the employee could never afford to buy.
C) having too elaborate of financial and inventory controls in place.
D) a low probability of getting caught.
42) Employee theft can be caused or encouraged by a number of factors including:
A) physical breakdowns of security.
B) improper cash controls.
C) organizational atmosphere.
D) All of these
43) Employers can reduce employee theft through:
A) careful screening of employees during hiring.
B) only hiring relatives and the friends of current employees.
C) the use of metal detectors and random strip searches of employees.
D) searching employees' lockers and cars during work hours.
44) One way to reduce employee theft is to:
A) hire private investigators to do background checks on prospective employees.
B) install audio surveillance equipment at key locations in the facility.
C) monitor employees at work and on breaks by having supervisors walk by periodically.
D) have a strict company policy about theft and to prosecute when someone is caught.
45) Nearly half of all shoplifters are:
A) professionals.
B) impulse shoplifters.
C) juveniles.
D) None of these
46) Kleptomaniacs have a compulsive need to steal even though they have little, if any, need for
the items they shoplift. Kleptomaniacs account for less than ________ percent of shoplifters.
A) 10
B) 5
C) 7
D) 15
47) The ________ shoplifter is often a regular customer, well-respected individual, etc.
A) juvenile
B) kleptomaniac
C) professional
D) impulse
48) When it comes to catching and prosecuting shoplifters:
A) there is only a 1 in 100 chance a shoplifter will go before a judge.
B) nearly ½ of all shoplifters are caught and prosecuted.
C) women and juveniles are most frequently caught, nearly 98% of the time.
D) the store owner or employees must catch the shoplifter in the store to make the charges stick.
49) Store owners and employees may apprehend and charge a shoplifter:
A) merely on the suspicion that they have stolen something.
B) if the individual puts something in their bag or pocket without paying for it but hasn't left the
store.
C) only if the theft amounts to more than $25.
D) only if they see the theft and can prove the merchandise belongs to the store and wasn't paid
for.
50) ________ system(s) enable(s) business owners to track their inventories and to place orders
with vendors quickly and with few errors by linking them to their vendors electronically.
A) Electronic Data Processing (EDP)
B) Electronic Fund Processing (EFP)
C) Cloud-based systems
D) Enterprise Resource Planning (ERP)
51) Today a small growing company can improve their working relationships with both suppliers
and customers through the application of ________.
A) electronic data processing (EDP)
B) cloud-based systems
C) electronic fund processing (EFP)
D) customer relationship management (CRM)
52) The ________ inventory system is designed to maintain a running count of the items in
inventory.
A) perpetual
B) ABC
C) visual control
D) JIT
53) Which inventory control system is designed to maintain a running count of the items in
inventory?
A) Visual control system
B) Perpetual inventory system
C) ABC system
D) JIT system
54) The ultimate goal for every business is to drive the inventory to ________.
A) zero
B) below average
C) average
D) above average
55) The most effective businesses know that what is required is not simply the technology but
the ________ with suppliers who are themselves technologically sophisticated enough to interact
on a real time basis to deliver what is needed when it is needed.
A) credit terms
B) electronic data interchange
C) critical strategic alliances
D) None of the above
56) In a retail environment, the concept of JIT II is more commonly known as ________.
A) electronic inventory process
B) efficient consumer response (ECR)
C) electronic consumer behavior
D) None of the above
57) In a retail environment, rather than build inventories of merchandise that might sit for
months before selling (or worse, never sell at all), retailers using ________ replenish their
inventories constantly on an as-needed basis.
A) electronic inventory process
B) electronic consumer behavior
C) efficient consumer response (ECR)
D) None of the above
58) Information needed for a perpetual inventory system is an item's:
A) name.
B) stock number.
C) description.
D) All of the above
59) In general, a(n) ________ inventory control system works best in firms in which daily sales
are relatively consistent.
A) perpetual
B) periodic
C) visual
D) ABC
60) A visual inventory system works best in firms where:
A) daily sales are slow.
B) the variety of merchandise is very limited.
C) the store is small.
D) All of the above
61) In the ABC method of inventory, A refers to:
A) items that account for a high dollar usage volume.
B) items that account for a moderate dollar usage volume.
C) items that account for low dollar usage volume.
D) None of the above
62) In the ABC method of inventory, B refers to:
A) items that account for a moderate dollar usage volume.
B) items that account for a high dollar usage volume.
C) items that account for low dollar usage volume.
D) None of the above
63) In the ABC method of inventory, C refers to:
A) items that account for a moderate dollar usage volume.
B) items that account for low dollar usage volume
C) items that account for a high dollar usage volume.
D) None of the above
64) Which of the following statement is correct?
A) Items in the A classification should be controlled under a perpetual inventory system with as
much detail as necessary.
B) Control of B items should rely more on periodic control systems and basic analytical tools
such as EOQ and reorder point analysis.
C) C items typically constitute a minor proportion of the small firm's inventory value and, as a
result, require the least effort and expense to control.
D) All of the above
