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Inventory Control MCQ Quiz - Objective Question with Answer for Inventory Control -
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Last updated on Feb 25, 2024

Latest Inventory Control MCQ Objective Questions

Inventory Control Question 1:

The order cost per order of an inventory is Rs. 400 with an annual carrying cost of Rs. 10 per
unit. The Economic Order Quantity (EOQ) for an annual demand of 2000 units is

1. 400

2. 440

3. 480

4. 500

Answer (Detailed Solution Below)

Option 1 : 400
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Inventory Control Question 1 Detailed Solution

The correct answer is 400.

Key Points
The Economic Order Quantity (EOQ) can be calculated using the following formula:
EOQ
EOQ=2DSH" id="MathJax-Element-1-Frame" role="presentation" style="position: relative;"
tabindex="0"> EOQ=2DSH"
EOQid="MathJax-Element-33-Frame" role="presentation"
style="position: relative;" tabindex="0"> EOQ = √
2 DS

H
​

where:

" id="MathJax-Element-2-Frame" role="presentation" style="position: relative;" tabindex="0">"

id="MathJax-Element-34-Frame" role="presentation" style="position: relative;" tabindex="0">
D is the annual demand (2000 units in this case),
" id="MathJax-Element-3-Frame" role="presentation" style="position: relative;" tabindex="0">"
id="MathJax-Element-35-Frame" role="presentation" style="position: relative;" tabindex="0">
S is the ordering cost per order (Rs. 400), and
" id="MathJax-Element-4-Frame" role="presentation" style="position: relative;" tabindex="0">"
id="MathJax-Element-36-Frame" role="presentation" style="position: relative;" tabindex="0">
H is the holding or carrying cost per unit per year (Rs. 10).

Now, plug in the values:

EOQ id="MathJax-Element-5-Frame" role="presentation" style="position: relative;"
EOQ=2×2000×40010"
tabindex="0"> EOQ=2×2000×40010"EOQ id="MathJax-Element-37-Frame"
role="presentation" style="position: relative;" tabindex="0">
2×2000×400
EOQ = √
10

EOQ
EOQ=160000010" id="MathJax-Element-6-Frame" role="presentation" style="position: relative;"
tabindex="0"> EOQ=160000010" id="MathJax-Element-38-Frame"
EOQ
role="presentation" style="position: relative;" tabindex="0"> EOQ = √
1600000

10
​

EOQ=160000" id="MathJax-Element-7-Frame" role="presentation" style="position: relative;"

tabindex="0"> EOQ=160000" id="MathJax-Element-39-Frame" role="presentation"
style="position: relative;" tabindex="0"> EOQ = √ 160000 ​
English Get Started
" id="MathJax-Element-8-Frame" role="presentation" style="position: relative;" tabindex="0">"
id="MathJax-Element-40-Frame" role="presentation" style="position: relative;" tabindex="0">
EOQ=400

Therefore, the Economic Order Quantity (EOQ) for an annual demand of 2000 units, with an ordering
cost per order of Rs. 400 and an annual carrying cost of Rs. 10 per unit, is 400 units.

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Inventory Control Question 2:

Which of the following relationships hold true for safety stock ?

1. The greater the risk of running out of stock, the smaller the safety of stock

2. The larger the opportunity cost of the funds invested in inventory, the larger the safety stock

3. The greater the uncertainity associated with forecasted demand, the smaller the safety stock

4. The higher the profit margin per unit, the higher the safety stock necessary

Answer (Detailed Solution Below)

Option 3 : The greater the uncertainity associated with forecasted demand, the smaller the safety stock

Inventory Control Question 2 Detailed Solution

The relationship that holds true for safety stock among the options provided is:
The greater the uncertainty associated with forecasted demand, the larger the safety stock.
English Get Started
Explanation:

Safety stock is held as a buffer to account for uncertainties in demand, supply chain disruptions, or
other factors that may lead to variations in actual demand compared to the forecasted demand.

When there is greater uncertainty in forecasted demand, meaning it's harder to predict how much
product will be needed, a larger safety stock is generally required to mitigate the risk of stockouts and
ensure that customer demand can be met.

Therefore, the correct option is: "The greater the uncertainty associated with forecasted demand, the
larger the safety stock."

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Inventory Control Question 3:

The economic order quantity formula is taken using

1. Integral calculus

2. Differential calculus

3. Matrix algebra

4. Multivariate analysis

Answer (Detailed Solution Below)

Option 2 : Differential calculus

Inventory Control Question 3 Detailed Solution
English Get Started

The correct answer is Differential calculus.

Key Points
Economic order quantity (EOQ) is the ideal quantity of units a company should purchase to
meet demand while minimizing inventory costs such as holding costs, shortage costs, and order
costs.
Economic order quantity (EOQ) is the theoretically ideal quantity of goods that a firm should
purchase that minimizes its inventory costs.
Economic order quantity tells businesses the ideal order size for every product they buy.
Differential calculus deals with the rate of change of one quantity with respect to another or a
study of rates of change of quantities.
EOQ is a decision model, based on differential calculus, that determines the optimum order
size for purchasing

Hence, the correct answer is Differential calculus.

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Inventory Control Question 4:

When at price of Rs. 5 per unit of a commodity, A’s demand is for 11 units, B’s demand is for
14 units and C’s demand is for 8 units, then market demand will be

1. 11 units
 2. 14 units English Get Started

3. 17 units

4. 33 units

Answer (Detailed Solution Below)

Option 4 : 33 units

Inventory Control Question 4 Detailed Solution

The correct answer is 33 units.

Key Points
Market demand is the total quantity of a product or service that consumers are willing and able
to purchase at a given price and within a specific market. It represents the collective desire and
purchasing power of potential customers.
To calculate market demand, we need to add up the individual demands of all consumers in the
market.

Market demand is calculated based on the number of people who could buy and how much they
are willing and able to spend. If 5000 people can afford a product and all 100% are willing to buy
the product, the market demand is 5000 if each person buys one product.

Important Points
It is given that price of the commodity = Rs. 5 / unit.

A's demand = 11, B's demand = 14, C's demand = 8.

So market demand = Total of all individual demands
English Get Started
= 11 + 14 + 8

= 33 units.
Hence, the correct answer is 33 units.

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Inventory Control Question 5:

Break-even is not affected with changes in __________

1. Sales price per unit

2. Variable cost per unit

3. Total fixed costs

4. Number of units sold

Answer (Detailed Solution Below)

Option 1 : Sales price per unit

Inventory Control Question 5 Detailed Solution

The correct answer is Sales price per unit.

Key Points
 The break-even point is not affected by changes in the sales price per unit. The break-even point is the
level of sales at which total revenue equals total costs, resulting in neither profit nor loss. The
English Get Started
components that impact the break-even point are:

Variable Cost per Unit: An increase or decrease in variable cost per unit directly affects the break-even
point.

Number of Units Sold: The break-even point is directly influenced by the number of units sold. As the
number of units sold increases, the break-even point is reached at a higher level of sales.

Total Fixed Costs: Fixed costs are part of the calculation of the break-even point. Any change in total
fixed costs alters the break-even point.

However, the sales price per unit doesn't directly impact the break-even point because it is used to
calculate the contribution margin (sales price per unit minus variable cost per unit). The break-even
point is determined by the fixed costs divided by the contribution margin per unit. Since the sales price
per unit affects both revenue and variable cost, it cancels out when calculating the contribution margin
and, consequently, the break-even point remains unaffected by changes in the sales price per unit.

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Top Inventory Control MCQ Objective Questions

Inventory Control Question 6 Download Solution PDF

Which one of the following is NOT a technique of inventory control?

1. ABC analysis

2. FSN analysis

3. GOLF analysis
 English Get Started
4. FTMN analysis

Answer (Detailed Solution Below)

Option 4 :

FTMN analysis

Inventory Control Question 6 Detailed Solution Download Solution PDF

Explanation:

Various techniques of inventory control are explained in the table below:

Class A - item: 10 % of the item accounts

Inventory items 75% costs.
ABC
are classified
analysis(
based on their Class B - item: 20% of the item accounts 15%
Always
annual usage costs.
Better
value in monetary
Control) Class C - item: 70% of the item accounts 10%
terms.
costs.

V-Vital: Without which the production

process would come to standstill
Inventory items are
VED
classified on the E-Essential: Their non-availability will
Analysis
basis of their adversely affect the efficiency of the
(Vital,
criticality i.e. production system. It should be given second
Essential,
according to the priority.
Desirable
cost of incurring a
) D-Desirable: Without which the process is
stock out
unaffected but is good if they are available for
better efficiency.

GOLF stands for,

G → government
GOLF GOLF analysis is
carried out mainly on O → Ordinary
Analysis
the basis of material.
L → Local

F → foreign
 SDE S-Scarce: Imported items whichEnglish
are generally Get Started
Analysis This type of in short supply
(Scarce, analysis is useful in
Difficult, the study of those D-Difficult: These are available in market but
Easily items which are not always traceable or immediately supplied
Available scarce in availability
) E-Easily: Easily available in the market

HML H-Highest: Items whose unit cost is very

Analysis high, or maximum are given top priority
This type of
(High, analysis is similar to M-Medium: Items whose unit cost is of
Medium, ABC analysis, medium value
Low except that cost per
Cost) item is taken. L-Low: Items whose unit cost is low

F-Fast moving items: That are consumed in

short span of time
FSND
Analysis Inventory items are N-Normal moving items: That are
(Fast, classified in the consumed over a period of one year
Slow, descending order S-Slow moving items: These items are not
Non- of their usage frequently issued and consumed over a
moving, (Consumption rate/ period of two years or more.
Dead movement value).
items) D-Dead items: Consumption of such items
are almost nil. It can also be taken as obsolete
items

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Inventory Control Question 7 Download Solution PDF

ABC inventory control focuses on those
English Get Started

1. Items not readily available

2. Items which consume less money

3. Items which have more demand

4. Items which consume more money

Answer (Detailed Solution Below)

Option 4 : Items which consume more money

Inventory Control Question 7 Detailed Solution Download Solution PDF

Concept:

The inventory comprises of a large number of items. All items are not of equal importance. The firm,
therefore, should pay more attention and care to those items whose usage value is high and less
attention to those whose usage value is low.

There are different types of selective inventory control:

Class A - item: 10 % of the item accounts

Inventory items 75% costs.
ABC
are classified
analysis(
based on their Class B - item: 20% of the item accounts 15%
Always
annual usage costs.
Better
value in monetary
Control) Class C - item: 70% of the item accounts 10%
terms.
costs.

VED Inventory items are V-Vital: Without which the production

Analysis classified on the process would come to a standstill
(Vital, basis of their
Essential, criticality i.e. E-Essential: Their non-availability will
Desirable according to the adversely affect the efficiency of the
) cost of incurring a production system. It should be given second
stock out priority.

D-Desirable: Without which the process is

unaffected but is good if they are available for
 better efficiency.
English Get Started

SDE S-Scarce: Imported items which are generally

Analysis This type of in short supply
(Scarce, analysis is useful in
D-Difficult: These are available in the market
Difficult, the study of those
but not always traceable or immediately
Easily items which are
supplied
Available scarce in availability
) E-Easily: Easily available in the market

HML H-Highest: Items whose unit cost is very

Analysis high, or maximum are given top priority
This type of
(High,
analysis is similar to M-Medium: Items whose unit cost is of
Medium,
ABC analysis, medium value
Low except that cost per
Cost) L-Low: Items whose unit cost is low
item is taken.

F-Fast moving items: That is consumed in a

short span of time
FSND
N-Normal moving items: That is consumed
Analysis Inventory items are
(Fast, classified in the over a period of one year
Slow, descending order
S-Slow moving items: These items are not
Non- of their usage frequently issued and consumed over a
moving, (Consumption rate/
period of two years or more.
Dead movement value).
items) D-Dead items: Consumption of such items
are almost nil. It can also be taken as obsolete
items

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Inventory Control Question 8 English DownloadGet
Solution PDF
Started

In the classical economic order quantity (EOQ) model, let Q and C denote the optimal order
quantity and the corresponding minimum total annual cost (the sum of the inventory
holding and ordering costs). If the order quantity is estimated incorrectly as Q′ = 2Q, then
the corresponding total annual cost C′ is

1. C′ = 1.25C

2. C′ = 1.5C

3. C′ = 1.75C

4. C′ = 2C

Answer (Detailed Solution Below)

Option 1 : C′ = 1.25C

Inventory Control Question 8 Detailed Solution Download Solution PDF

Concept:

The total annual cost for the inventory system is given as:
D Q
C = Co + Ch
Q 2

where C is the total annual cost, D is the annual demand, Q is the order quantity, Co is the ordering
cost and Ch is the holding cost per unit per year.

In economic order quantity (EOQ), D Q

Co = Ch
Q 2

Calculation:

Given:

In economic order quantity,

or C =
D Q Q Q
Co = Ch Ch + Ch
Q 2 2 2
⇒ C = QCh
English Get Started
Now, the new order quantity is Q′ = 2Q, so the new total cost is
′

=C
′ D Q ′ D 2Q
C = ′ Co + Ch = Co + Ch
Q 2 2Q 2

⇒ 1

2
(
Q

2
C h ) + QC h =
Q

4
Ch + QC h = 5

4
QC h

∴ C′ = 1.25C

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Inventory Control Question 9 Download Solution PDF

The demand for a commodity is 100 units per day. Every time an order is placed, a fixed cost
of Rs. 400 is incurred. Holding cost is R. 0.08 per unit per day. If the lead time is 13 days,
then the economic lot size and the recorder point are in units

1. 800 and 130

2. 840 and 100

3. 890 and 300

4. 1000 and 300

Answer (Detailed Solution Below)

Option 4 : 1000 and 300
English Get Started

Inventory Control Question 9 Detailed Solution Download Solution PDF

Concept:

The ordering quantity Q* at which holding cost becomes equal to ordering cost and the total inventory
cost is minimum is known as Economic Order Quantity (EOQ).

At EOQ:

Ordering cost = Holding cost

∗
D Q
Co = Ch
Q∗ 2

∗ 2DC o
Q = √
Ch

D = Annual or yearly demand for inventory (unit/day)

Q = Quantity to be ordered at each order point (unit/order)

Co = Cost of placing one order [Rs/order]

Ch = Cost of holding one unit in inventory for one complete year [Rs/unit/day]

Cycle time:

Order cycle time refers to the time period between placing one order and the next order.
Q
T =
D

Re-order Level (ROL):

The quantity in hand while placing the order.

Case - I

When lead time is lower than cycle time (TL < T).

ROL = Lead Time (TL) × Demand (D).

Case - II

When lead time TL is greater than cycle time T, then:

ROL = (TL - T) × Demand (D)

Calculation:

Given:

D = 100 unit/day, Co = 400 unit/order, Ch = 0.08 Rs./unit/day, Lead time TL = 13 days

EOQ:
English Get Started
∗ 2DC o
Q = √
Ch

∗ 2×100×400
Q = √ = 1000 units
0.08

Cycle Time:
Q
T =
D

1000
T = = 10 days
100

TL > T

ROL = (TL - T) × Demand (D)

ROL = (13 - 10) × 100 = 300 units.

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Inventory Control Question 10 Download Solution PDF

The demand rate for a particular item is 12000 units/year. The ordering cost is Rs.100 per
order and the holding cost is Rs.0.80 per item per month. If no shortages are allowed and
the replacement is instantaneous, then the economic order quantity is

1. 1500 units

2. 2000 units

3. 500 units
 4. 1000 units English Get Started

Answer (Detailed Solution Below)

Option 3 : 500 units

Inventory Control Question 10 Detailed Solution Download Solution PDF

Concept:

This model is used when the replacement is instantaneous and no shortage is allowed. The Economic
Order Quantity for this model is given by Wilson Formula.

∗ 2DC o
Q = √
Ch

where Q* = Economic Order Quantity (Units), D = Demand rate (Units/month or Units/year), Co =

Ordering cost/order (Rs.), Ch = Handling cost (Rs./unit/year)

[Note: Time unit of Demand & Handling Cost must be same i.e. units/year or units/month]

Calculation:

Given:

D = 12000 units/year, Co = Rs. 100, Ch = Rs. 0.80/unit/month ⇒ Rs. 0.80 × 12/unit/year

∵ ∗ 2DC o
Q = √
Ch
 ∗ 2×12000×100
⇒ Q = √
0.80×12 English Get Started

⇒ Q* = 500 units.

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Inventory Control Question 11 Download Solution PDF

At break even point slope of sales line is equal to

1.
V ariable Expenses + Constant Expenses

T otal Sales

2. T otal Sales

T otal Expenses

3.
T otal Sales − P rof it

V ariable Expenses + P rof it

4.
V ariable Expenses − Constant Expenses

T otal Sales

Answer (Detailed Solution Below)

Option 1 :
V ariable Expenses + Constant Expenses

T otal Sales

Inventory Control Question 11 Detailed Solution Download Solution PDF

Explanation:
Breakeven analysis is used to find the minimum level of production required. It evaluates both fixed and
variable costs. English Get Started

A breakeven analysis is used to determine how much sales volume your business needs to start
making a profit, based on your fixed costs, variable costs, and selling price.

Break-even analysis consists of:

1. Fixed cost (F)

2. Variable cost (V)
3. Sales revenue (S)
F
BEP = ( )
S−V

From the diagram, the slope of the sales line at BEP will be given by,
T otal Cost
Slope of sales line =
T otal Sales at BEP

At BEP, Total cost = Fixed cost + Variable cost

V ariable Cost + F ixed Cost V ariable Expenses + Constant Expenses
Slope of sales line = =
T otal Sales at BEP T otal Sales

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Inventory Control Question 12 Download Solution PDF

VED analysis of inventory control stands for:
English Get Started

1. Value, Engineering and Desirable

2. Value, Essential and Desirable

3. Vital, Essential and Desirable

4. Value, Essential and Demand

Answer (Detailed Solution Below)

Option 3 : Vital, Essential and Desirable

Inventory Control Question 12 Detailed Solution Download Solution PDF

Explanation:

The inventory comprises of large number of items. All items are not of equal importance.
The firm, therefore, should pay more attention and care to those whose items whose usage value
is high and less values to those whose usage value is low.

There are different types of selective inventory control:

Class A - item: 10 % of the item accounts

ABC 75% costs.
Inventory items
analysis( are classified based
Class B - item: 20% of the item accounts
Always on their annual
usage value 15% costs.
Better
Control) in monetary terms. Class C - item: 70% of the item accounts
10% costs.

VED Inventory items are V-Vital: Without which the production

Analysis classified on the process would come to standstill
(Vital, basis of their
Essential criticality i.e. E-Essential: Their non-availability will
, according to the adversely affect the efficiency of the
Desirable cost of incurring a production system. It should be given second
stock out priority.
)
D-Desirable: Without which the process is
unaffected but is good if they are available for
 better efficiency.
English Get Started

SDE S-Scarce: Imported items which are

Analysis This type of generally in short supply
(Scarce, analysis is useful in
Difficult, the study of those D-Difficult: These are available in market but
Easily items which are not always traceable or immediately supplied
Available scarce in availability
) E-Easily: Easily available in the market

HML H-Highest: Items whose unit cost is very

Analysis high, or maximum are given top priority
This type of
(High,
analysis is similar to M-Medium: Items whose unit cost is of
Medium,
ABC analysis, medium value
Low except that cost per
Cost) item is taken. L-Low: Items whose unit cost is low

F-Fast moving items: That are consumed in

short span of time
FSND
Analysis N-Normal moving items: That are consumed
Inventory items are
(Fast, classified in the over a period of one year
Slow, descending order S-Slow moving items: These items are not
Non- of their usage
frequently issued and consumed over a
moving, (Consumption rate/
period of two years or more.
Dead movement value).
items) D-Dead items: Consumption of such items
are almost nil. It can also be taken as obsolete
items

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Inventory Control Question 13 English DownloadGet
Solution PDF
Started

Break-even analysis chart is drawn between

1. overhead cost and fixed cost

2. volume of production and income

3. material cost and labour cost

4. none of these

Answer (Detailed Solution Below)

Option 2 : volume of production and income

Inventory Control Question 13 Detailed Solution Download Solution PDF

Explanation:

Break-even chart:

The break-even analysis is the study of cost-volume-profit (CVP) relationship in which a graph is
drawn between volume of production (Quantity) and income (Sales).
It refers to a system of determining that level of operations where the organisation neither earns
profit nor suffer any loss i.e where the total cost is equal to total sales i.e the point of zero profit
(Break-even point).
In a broader sense, it refers to a system of analysis that can be used to determine probable
profit at any level of activity.
The figure below shows the break-even chart.
 English Get Started

Home Industrial Engineering

Download Inventory Control M…
Production Planning and Inventory Control Inventory Control

The various point mentioned in the graph are:

Fixed cost:

The cost which does not change for a given period (lifetime).
This cost is independent of the volume of production (means it doesn’t affect by whether the
production is large or small).
For example, rent, taxes salaries of the supervisor, cost of the machine, insurance cost, etc.

Variable cost:

This cost varies directly and proportionally with the output.

Higher the output, larger the variable cost.
For example, the cost of raw material, cost of labour, etc.

Total Cost:

Total cost is the sum of fixed cost and variable cost.

Total revenue/sales:

It indicates the return obtained by selling the number of units produced.

It is directly proportional to the volume of production.

Margin of safety:

The Margin of safety is the distance between the break-even point and output is produced.
A large margin of safety indicates that the business can earn profit even if there is a great
reduction in output.
A small margin of safety indicates that the profit will be small even if there is a small drop in
output.
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Break-even point:
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It is the point of intersection of the total cost line and total revenue line.
There is neither profit nor loss at the break-even point.
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Inventory Control Question 14 Download Solution PDF

The amount of time elapsed from the moment an inventory replenishment order is placed
and the moment the supplier delivers the goods is

1. lead time

2. cycle time

3. take time

4. order time

Answer (Detailed Solution Below)

Option 1 : lead time

Inventory Control Question 14 Detailed Solution Download Solution PDF

Explanation:
 English Get Started

Lead Time:

The time gap between the placing of an order and its actual arrival in the inventory is known as
Lead Time.
Lead Time can be greater, less, or equal to Order Cycle.

Order Cycle:

The time period between two successive orders is called Order Cycle.

Re-order Level (ROL):

The quantity in hand while placing the order.

ROL = Lead Time × Demand.

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Inventory Control Question 15 Download Solution PDF

Which of the following inventory costs represents the cost of loss of demand due to
English Get Started
shortage in supplies?

1. Stockout cost

2. Unit cost

3. Procurement cost

4. Carrying cost

Answer (Detailed Solution Below)

Option 1 : Stockout cost

Inventory Control Question 15 Detailed Solution Download Solution PDF

Explanation:-

Shortage or Stockout cost

Shortage simply means the absence of inventory and the loss associated with not serving the
customer is known as Shortage or stockout cost. It includes potential profit delay loss, fast
transportation cost

Important Points

Carrying cost
It is the cost associated with storing keeping inventory items in
the production system.

Procurement cost It is the cost of purchasing inventory for sale.

A unit cost is a total expenditure incurred by a company to

Unit cost
produce, store, and sell one unit of a particular product.

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