Inventory MCQs of valuation accounts and Management

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1. : ……….. is the term associated with inventory is called
(A) Re-order costs
(B) Purchase price of the inventory
(C) Inventory holding costs, Shortage costs
(D) All of the above

2. : Which of the following accounts normally has a subsidiary ledger?
(A) Capital stock
(B) Accounts payable
(C) Retained earnings
(D) Supplies

3. : Which of the following cost includes by Inventory holding costs?
(A) Insurance costs
(B) Cost of capital tied up
(C) Cost of warehousing, obsolescence, deterioration, and theft
(D) All of the above

4. : Shortage costs of inventory include:
(A) Lost profit on sale
(B) Future loss of profit due to loss of customer goodwill
(C) Costs due to production stoppage due to shortage of raw materials
(D) All of the above

5. : Which of the following is not an inventory?
(A) Raw material
(B) Finished products
(C) Both A and B
(D) Machines

6. : All of the following classes of costs are usually involved in making the inventory decisions except ……..the cost.
(A) Cost of ordering
(B) Carrying cost
(C) Machining cost
(D) None of these

7. : The cost of insurance and tax is included in which of the following costs?
(A) Inventory carrying cost
(B) Cost of ordering
(C) Set up cost
(D) None of these

8. : ‘Buffer stock’ is the level of stock:
(A) Half of the actual stock
(B) Minimum stock level below which actual stock should not fall
(C) At which the ordering process should start
(D) None of them

9. : Which of the following always recorded in the general journal?
(A) Closing entries
(B) Purchases of supplies on account
(C) Rendering services on account
(D) Rendering services for cash

10. : Select the assumptions of Economic Order Quantity (EOQ):
(A) There are no bulk purchase discounts for making orders in large sizes. All units purchased for each item of material cost the same unit price.
(B) The order lead time (the time between placing an order and receiving delivery from the supplier) is constant and known.
(C) Annual demand and consumption for the inventory item is constant throughout the year.
(D) All of the above

11. : Which of the following is the cost for the purpose of Economic Order Quantity (EOQ)?
(A) The annual holding cost per item per annum
(B) The annual ordering costs
(C) Both A & B
(D) None

12. : ABC analysis divides an organization’s on-hand inventory into three classes based upon:
(A) Unit price
(B) Annual dollar values
(C) Annual demand
(D) The number of units on hand

13. : In EOQ model the equation (Q/2) × CH is used to calculate which one of the following?
(A) The number of orders each year
(B) Total ordering costs each year
(C) The total holding costs each year
(D) All of the above

14. : What does FIFO mean in the inventory management system?
(A) First In First Out
(B) Fabrications Inward Fabrications Outward
(C) Final Input Final Output
(D) Finished stock In Finished stock out

15. : In the economic order quantity model the equation D/Q calculates which one of the following?
(A) The total holding costs each year
(B) Total ordering costs each year
(C) The number of orders each year
(D) All of the above

16. : In the economic order quantity model the equation (D/Q) × CO calculates which one of the following?
(A) Total ordering costs each year
(B) The number of orders each year
(C) The total holding costs each year
(D) All of the above

17. : The latest cost of inventories is changed to production but the old prices are changed to inventories on hand?
(A) FIFO
(B) LIFO
(C) Average
(D) Perpetual

18. : If we want to minimize the total cost of holding and ordering inventory using the EOQ model, then it is necessary to balance the relevant costs. These are:
(A) The variable costs of holding the inventory
(B) The fixed costs of placing the order
(C) Both A & B
(D) None

19. : The EOQ can be calculated by using which one of the following?
(A) Graph
(B) Table
(C) Formula
(D) All of the above

20. : The time period between placing an order and its receipt in stock is known as:
(A) Carrying time
(B) Lead time
(C) Shortage time
(D) Overtime

21. : Re-ordering level is calculated by the formula:
(A) Minimum consumption rate x Minimum re-order period
(B) Maximum consumption rate x Minimum re-order period
(C) Maximum consumption rate x Maximum re-order period
(D) Minimum consumption rate x Maximum re-order period

22. : Average stock level can be calculated by the formula:
(A) Maximum stock level + ½ of Re-order level
(B) Minimum stock level + 1/3 of Re-order level
(C) Maximum stock level + 1/3 of Re-order level
(D) None of these

23. : An increase in inventories indicates that:
(A) Not all purchases were cash
(B) Less merchandise was purchased than sold to the customer
(C) More merchandise was purchased than the amount sold to customer
(D) Cash payments were more than purchases on account

Inventory MCQs of valuation accounts and Management
By: Prof. Dr. Fazal Rehman | Last updated: May 29, 2025

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