OPM 3000 FINAL EXAM PREP QUESTIONS AND
ANSWERS
If two firms have the same annual inventory turns, they also have the same days-of-supply. - CORRECT
ANSWER✅✅True
Why: (If two firms have the same annual inventory turns, then they have the same years-of-supply
because years-of-supply = 1 / annual inventory turns. If they have the same years-of-supply, then they
must have the same days-of-supply as well because Days-of-supply = Years-of-supply × 365.)
Product A's annual inventory turns is 4 and product B's annual inventory turns is 6. Which product has
the higher amount of inventory, measured in dollars? - CORRECT ANSWER✅✅Cannot be determined
(could be either one)
Why: (Turns is the ratio of Sales to Inventory. Just because produce A has the lower turns doesn't mean
that it has the higher amount of inventory. Product A could have sales of $10,00 per year and product B
could have sales of $100,000 per year.)
Which of the following possible responses by a customer who is faced with a stockout is the most costly
to the firm?
*Lose the sale and lose the customer. Correct
*Lose the sale.
*Lose the sale of one item, but the customer purchases another item.
*Customer waits for the item to become available. - CORRECT ANSWER✅✅Lose the sale and lose the
customer
Firms in the same industry will have the same inventory turns. - CORRECT ANSWER✅✅False
Why: (There can be variation in inventory turns among the same firms within an industry.)
, A local bookstore turns over its inventory once every four months. The bookstore's annual cost of
holding inventory is 35 percent.
What is the inventory holding cost (in $) for a book that the bookstore purchases for $12 and sells for
$19? ______ per book - CORRECT ANSWER✅✅Answer is 1.40 per book
Why:
Inventory turnover = 12 months / 4 months = 3 times.
Inventory holding cost for 12 months = 35% of unit cost
Inventory holding cost for 4 months = 35% × (4/12) = 11.67 % per 4 months
Unit cost of the book = $12
Holding cost per unit per 4 months = unit cost × holding cost for 4 months
= $12 x 11.6%
= $ 1.392 per book per 4 months
= $1.40 per book per 4 months.
Hence, inventory holding cost (in $) for a book that the bookstore per book is IS 1.4.
A bicycle manufacturer purchases bicycle seats from an outside supplier for $23 each. The
manufacturer's inventory of seats turns over 1.2 times per month, and the manufacturer has an annual
inventory holding cost of 33 percent.
What is the inventory holding cost (in $) for a bicycle seat? ______ per seat - CORRECT ANSWER✅✅The
Inventory Turnover of 1.2 times per month means that the inventory is rolled 1.2 times per month.
Therefore , the inventory gets rolled = 1.2 times / month x 12 months = 14.4 times per year
Inventory turnover ratio will be defined as :
Inventory Turnover Ratio = Cost of goods sold / Average inventory value
Therefore , Average inventory value = Cost of goods sold / Inventory turnover ratio
Since , Cost of single item = $23
ANSWERS
If two firms have the same annual inventory turns, they also have the same days-of-supply. - CORRECT
ANSWER✅✅True
Why: (If two firms have the same annual inventory turns, then they have the same years-of-supply
because years-of-supply = 1 / annual inventory turns. If they have the same years-of-supply, then they
must have the same days-of-supply as well because Days-of-supply = Years-of-supply × 365.)
Product A's annual inventory turns is 4 and product B's annual inventory turns is 6. Which product has
the higher amount of inventory, measured in dollars? - CORRECT ANSWER✅✅Cannot be determined
(could be either one)
Why: (Turns is the ratio of Sales to Inventory. Just because produce A has the lower turns doesn't mean
that it has the higher amount of inventory. Product A could have sales of $10,00 per year and product B
could have sales of $100,000 per year.)
Which of the following possible responses by a customer who is faced with a stockout is the most costly
to the firm?
*Lose the sale and lose the customer. Correct
*Lose the sale.
*Lose the sale of one item, but the customer purchases another item.
*Customer waits for the item to become available. - CORRECT ANSWER✅✅Lose the sale and lose the
customer
Firms in the same industry will have the same inventory turns. - CORRECT ANSWER✅✅False
Why: (There can be variation in inventory turns among the same firms within an industry.)
, A local bookstore turns over its inventory once every four months. The bookstore's annual cost of
holding inventory is 35 percent.
What is the inventory holding cost (in $) for a book that the bookstore purchases for $12 and sells for
$19? ______ per book - CORRECT ANSWER✅✅Answer is 1.40 per book
Why:
Inventory turnover = 12 months / 4 months = 3 times.
Inventory holding cost for 12 months = 35% of unit cost
Inventory holding cost for 4 months = 35% × (4/12) = 11.67 % per 4 months
Unit cost of the book = $12
Holding cost per unit per 4 months = unit cost × holding cost for 4 months
= $12 x 11.6%
= $ 1.392 per book per 4 months
= $1.40 per book per 4 months.
Hence, inventory holding cost (in $) for a book that the bookstore per book is IS 1.4.
A bicycle manufacturer purchases bicycle seats from an outside supplier for $23 each. The
manufacturer's inventory of seats turns over 1.2 times per month, and the manufacturer has an annual
inventory holding cost of 33 percent.
What is the inventory holding cost (in $) for a bicycle seat? ______ per seat - CORRECT ANSWER✅✅The
Inventory Turnover of 1.2 times per month means that the inventory is rolled 1.2 times per month.
Therefore , the inventory gets rolled = 1.2 times / month x 12 months = 14.4 times per year
Inventory turnover ratio will be defined as :
Inventory Turnover Ratio = Cost of goods sold / Average inventory value
Therefore , Average inventory value = Cost of goods sold / Inventory turnover ratio
Since , Cost of single item = $23
