What is the Minimum Stock Level and how is it determined?

The level of stock that a firm must maintain to meet production needs, calculated using lead time and consumption rates.

The maximum quantity of materials a firm should store, determined by available capital and storage space.

The average consumption of materials over a period, used to predict future stock needs.

The quantity of stock that can be stored without risk of spoilage or obsolescence.

What factors are considered when determining the Maximum Stock Level?

Only the average consumption rate of materials during lead time.

Availability of capital, maximum material requirements, and the nature of materials.

The historical price trends of materials and their demand fluctuations.

The quantity of materials stored currently and the expected future prices.

How is the Reordering Level calculated?

By multiplying the maximum consumption rate by the maximum reorder period.

By adding the minimum consumption rate to the average consumption rate.

By subtracting the minimum stock level from the maximum stock level.

By dividing the total stock by the number of days in the reorder period.

What happens if the stock falls below the Danger Level?

Immediate actions must be taken to replenish stock, regardless of cost.

Production is halted until new stock arrives.

Inventory levels are adjusted to prevent future shortages.

No action is needed until the stock reaches the Minimum Level.

What is the formula for calculating Average Stock Level?

Minimum Stock Level + Reorder Quantity.

Maximum Stock Level + Minimum Stock Level / 2.

Minimum Stock Level + ½ of Reorder Quantity.

Maximum Stock Level - Reorder Quantity.

What is the primary purpose of maintaining a Minimum Stock Level?

To avoid overstocking and reduce storage costs.

To ensure continuous production by preventing material shortages.

To maximize profits by minimizing inventory expenses.

To comply with government regulations on material storage.

What are the implications of overstocking materials?

Increased capital tied up in inventory and potential for material obsolescence.

Reduction in material costs due to bulk purchasing discounts.

Improved cash flow due to higher inventory turnover.

Increased employee productivity due to better resource availability.

How does the nature of materials influence stock levels?

Perishable materials require lower stock levels due to their limited shelf life.

Non-perishable materials can be stocked indefinitely without risk.

All materials require the same stock level regardless of their nature.

Only expensive materials need to be monitored closely for stock levels.

What is the effect of government restrictions on stock levels?

They can limit the maximum quantity of materials a firm can store.

They have no impact on stock management practices.

They usually encourage firms to hold larger inventories.

They only apply to imported materials, not locally sourced items.

What is the significance of calculating the Reorder Quantity?

It identifies the maximum stock levels needed for operations.

It determines how much stock to order when replenishing inventory.

It indicates the average usage rate of materials over time.

It helps in setting the Minimum Stock Level accurately.

What factors influence the Normal Consumption rate in stock management?

Only past consumption data from previous years.

Production plans, historical consumption data, and seasonal demand variations.

Only the current market demand for materials.

Inventory levels and storage capacities only.

How can fluctuations in prices affect stock levels?

They have no effect on stock levels as inventory is managed separately.

They can lead to increased costs for maintaining higher stock levels.

They only impact the purchasing decisions for raw materials.

They encourage firms to reduce stock levels to offset potential losses.

What is the relationship between the Maximum Stock Level and the Reorder Level?

The Maximum Stock Level is always higher than the Reorder Level.

The two levels are typically equal in a well-managed inventory system.

The Maximum Stock Level includes the Reorder Level plus additional stock.

The Reorder Level is irrelevant to the Maximum Stock Level.

What role does lead time play in stock management?

It determines how much stock can be ordered at one time.

It affects the planning of inventory replenishment and stock levels.

It has no significant impact on stock management practices.

It is only relevant for high-value materials.

How is the Minimum Consumption Rate determined?

By averaging the maximum and normal consumption rates.

By analyzing historical low usage data over a specified period.

By estimating future needs based on market trends.

By subtracting the reorder quantity from the average stock level.

What is the impact of storage space availability on stock levels?

Limited storage space can force firms to reduce stock levels to avoid congestion.

It has no impact; firms can always find additional storage solutions.

More space automatically leads to better inventory management.

Storage space is only a concern for large firms with extensive inventories.

What happens when the Average Stock Level exceeds the Maximum Stock Level?

The firm must immediately sell off excess inventory.

It indicates overstocking and may lead to increased holding costs.

It is a sign of effective inventory management.

There are no negative consequences for the firm.

Fixation of Inventory Levels Free MCQ Practice Test with Solutions

	Business for A Level 126 videos\|127 docs\|35 tests

	Business for A Level 126 videos\|127 docs\|35 tests

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