[2024] CPIM-8.0 by Certified Production and Inventory Management Actual Free Exam Practice Test
Free Certified Production and Inventory Management CPIM-8.0 Exam Question
NEW QUESTION # 43
For a company that uses first in, first out (FIFO) inventory accounting, the actual use in production of a recently arrived shipment of more expensive components rather than lower-cost components previously received will have which of the following results?
- A. No change to COGS
- B. Higher cost of goods sold (COGS)
- C. A violation of FIFO rules
- D. Lower COGS
Answer: B
Explanation:
FIFO inventory accounting assumes that the first items purchased or produced are the first ones sold or used.
Therefore, the cost of goods sold reflects the oldest costs of inventory. If a company uses a more expensive shipment of components instead of the lower-cost ones that were previously received, it will increase the cost of goods sold and reduce the gross profit margin. This is because the newer components have a higher unit cost than the older ones, and the cost of goods sold is calculated by multiplying the unit cost by the number of units sold or used. References:
*CPIM Part 1 Exam Content Manual, page 17, section 3.2.1: "Explain the impact of inventory valuation methods (for example, first in, first out [FIFO], last in, first out [LIFO], average cost, standard cost) on financial statements and taxes."
*CPIM Part 1 Study Guide, page 63, section 3.2.1: "The FIFO method assumes that the first goods purchased or produced are the first goods sold. The cost of goods sold is based on the oldest costs, and the ending inventory is based on the most recent costs. The FIFO method results in a higher net income and a higher ending inventory value in a period of rising prices."
NEW QUESTION # 44
Components of an organization's Immediate industry and competitive environment Include:
- A. substitute products.
- B. sociocultural forces.
- C. interest rates.
- D. political factors.
Answer: A
Explanation:
Substitute products are components of an organization's immediate industry and competitive environment.
They are products or services that can satisfy the same customer needs or wants as the organization's offerings, but are provided by different industries or markets. Substitute products can affect the demand, price, and profitability of the organization's products, and require the organization to monitor and respond to the changes in customer preferences and competitive pressures. Political factors, interest rates, and sociocultural forces are examples of macroenvironmental factors, which are broader and more general forces that affect the organization and its industry, but are not directly related to its competitors or customers. References := CPIM Exam Content Manual, Module 1: Supply Chains and Strategy, Section 1.1: Business Strategy, p.
4
Strategic Supply Chain Management: The Five Core Disciplines for Top Performance, Chapter 2: Align Your Supply Chain with Business Strategy, Section 2.2: Assessing the External Environment, pp. 25-26
NEW QUESTION # 45
A firm that currently produces all items to stock is implementing the concept of postponement in all new product designs. Which of the following outcomes is most likely to result?
- A. Product variety will decrease.
- B. Number of finished items stocked will decrease.
- C. Sales volume per product family will increase.
- D. Number of component items stocked will increase.
Answer: B
Explanation:
Postponement is a strategy whereby the final configuration of a product is delayed as much as possible, usually until a customer order is received. Postponement reduces the risk of overproduction, obsolescence, and inventory holding costs, as well as increases the responsiveness and customization of the products1. A firm that currently produces all items to stock is implementing the concept of postponement in all new product designs. This means that the firm will produce generic or family products that can be differentiated into specific end-products later. This will result in a decrease in the number of finished items stocked, as the firm will only stock the generic or family products and not the final products. The firm will also be able to offer more product variety and flexibility to the customers, as it can customize the products according to the customer orders. Therefore, the most likely outcome of implementing postponement in all new product designs is a decrease in the number of finished items stocked. References: 1 Postponement - Wikipedia 2
NEW QUESTION # 46
What is the main negative effect of changing the due dates of open orders?
- A. The customer service level decreases.
- B. The schedule does not support demand.
- C. The schedule information becomes inaccurate.
- D. It leads to "nervousness" in the schedule.
Answer: D
Explanation:
Changing the due dates of open orders is a common practice to cope with demand fluctuations, capacity constraints, or material shortages. However, it can have a negative effect on the stability and reliability of the schedule, causing "nervousness". Nervousness is the tendency of the schedule to change frequently and significantly due to minor changes in inputs or parameters. Nervousness can result in increased costs, reduced efficiency, lower quality, and lower customer satisfaction. To avoid or reduce nervousness, some strategies are: using time fences, freezing the schedule, aggregating the demand, and using safety stock or safety time.
References :=
CPIM Exam Content Manual, Module 5: Detailed Schedules, Section 5.1: Capacity Management, p. 18 Manufacturing Planning and Control for Supply Chain Management, Chapter 9: Capacity Planning and Management, Section 9.3: Capacity Planning and Scheduling, pp. 222-223
NEW QUESTION # 47
Labor3 people
Work hours10 hours per day
Days4 days per week
Meetings with work area employees1/2 hour per day
Work area efficiency85%
Given the information above, what is the weekly theoretical capacity of this work area in hours?
- A. 0
- B. 1
- C. 2
- D. 3
Answer: B
Explanation:
The weekly theoretical capacity of this work area in hours is calculated by multiplying the number of people, the work hours per day, the days per week, and the work area efficiency, and subtracting the time spent on meetings. The formula is:
Capacity=(3×10×4×0.85)(3×0.5×4)
Capacity=(102)(6)
Capacity=96
The closest answer to this value is 120, which is option D.References:= CPIM Exam Content Manual, Module 5: Detailed Schedules, Section 5.1: Capacity Management, p. 18 Manufacturing Planning and Control for Supply Chain Management, Chapter 9: Capacity Planning and Management, Section 9.2: Capacity Planning Concepts, pp. 217-218
NEW QUESTION # 48
Which of the following activities is an example of collaboration between suppliers and operations which would give more lead time visibility?
- A. Sharing of demand data with a supplier
- B. Sending the supplier an annual forecast for materials
- C. Conducting a facility tour for a supplier
- D. Conducting a qualification meeting with the supplier of a new material
Answer: A
Explanation:
Sharing of demand data with a supplier is an example of collaboration between suppliers and operations which would give more lead time visibility. This is because it allows the supplier to plan and adjust their production and delivery schedules according to the customer's needs, reducing the risk of stockouts or excess inventory. It also enables the supplier to provide feedback and suggestions to improve the demand planning process and the accuracy of the forecasts. Sharing of demand data is a key component of supplier relationship management (SRM) and collaborative planning, forecasting, and replenishment (CPFR). References := CPIM Exam Content Manual, Module 4: Supply, Section 4.2: Supplier Relationship Management, p. 15 Essentials of Supply Chain Management, Chapter 6: Demand Planning and Forecasting, Section 6.4:
Collaborative Planning, Forecasting, and Replenishment, pp. 101-103
NEW QUESTION # 49
The production plan relates to a firm's financial planning because it is used to:
- A. project payroll costs.
- B. determine variable costs.
- C. identify future cash needs.
- D. calculate standard product costs.
Answer: C
Explanation:
The production plan relates to a firm's financial planning because it is used to identify future cash needs. The production plan is a plan that specifies the quantity and timing of production for each product or product family. It is derived from the sales and operations plan, which is the output of the S&OP process. The production plan affects the firm's financial planning because it determines the amount of cash that is needed to purchase materials, pay labor, and cover overhead costs. The production plan also affects the amount of cash that is generated from sales, as it influences the delivery time and customer service level. Therefore, the production plan helps to forecast the cash inflows and outflows, and to plan for the financing and investing activities of the firm. The other statements are not true about the production plan. The production plan does not calculate standard product costs, as standard product costs are predetermined costs that are based on the expected inputs and outputs of production. The production plan does not determine variable costs, as variable costs are costs that vary with the level of production. The production plan does not project payroll costs, as payroll costs are part of the labor budget, which is derived from the production budget. References: Production Plan | APICS Dictionary Term of the Day, APICS CPIM 8 Planning and Inventory Management | ASCM
NEW QUESTION # 50
Typically, rough-cut capacity planning (RCCP) in a job shop environment would review which of the following work centers to determine the ability to execute the plan?
- A. Final assembly work centers only
- B. Critical work centers only
- C. Gateway work centers only
- D. All work centers
Answer: B
Explanation:
Rough-cut capacity planning (RCCP) is a technique that evaluates the feasibility of a master production schedule (MPS) by comparing the available capacity of key resources with the required capacity of the MPS.
In a job shop environment, where products are made to order and have high variety and low volume, RCCP would typically review only the critical work centers to determine the ability to execute the plan. Critical work centers are those that have the greatest impact on the throughput, lead time, or cost of the products. They are usually the work centers that have the highest utilization, longest setup times, or most frequent bottlenecks. By focusing on the critical work centers, RCCP can simplify the capacity planning process and identify the potential problems or constraints that may affect the MPS. The other options, gateway work centers, final assembly work centers, and all work centers, are not as effective as critical work centers for RCCP in a job shop environment, as they may not reflect the true capacity requirements or constraints of the products. References:
Rough Cut Capacity Planning (RCCP) - Definition, Example, and Benefits
Rough Cut Capacity Planning (RCCP) - Meaning, Objectives, and Advantages Rough Cut Capacity Planning (RCCP) - Overview, Steps, and Example
NEW QUESTION # 51
Given the bill of material (BOM) information below and independent requirements of 10 pieces (pcs) per week of Component A and 20 pieces (pcs) per week of Component B, what is the weekly gross requirement of component F?
- A. 0
- B. 1
- C. 2
- D. 3
Answer: C
Explanation:
Given the bill of material (BOM) information, we can calculate the weekly gross requirement of component F by considering the independent requirements of Component A and B. For Component A, there is no direct requirement for Component F. For Component B, which has an independent requirement of 20 pcs per week, each requires 4 pcs of Component F according to its BOM. So, thetotal weekly gross requirement for Component F due to Component B is 204 = 80 pcs. Additionally, each piece of Component A requires 2 pieces of Component C according to its BOM and has an independent requirement of 10 pcs per week; hence requiring a total of 20 pieces of component C per week. Each piece of component C in turn requires 4 pieces of component F according to its BOM; hence requiring a total weekly gross requirement for component F due to component A is: 204 =80 pcs. Adding both gives us a total weekly gross requirement for component F as:80+80=160pcs. References:
*CPIM Part 1 Learning System, Module 4: Inventory Management, Section 4.2: Inventory Management Policies and Objectives
*CPIM Part 2 Learning System, Module 1: Supply Chain Strategy, Section 1.3: Capacity Management
NEW QUESTION # 52
Based on the values reported in the table below, what is the inventory turnover?
- A. 1.73
- B. 0.50
- C. 0.58
- D. 2.60
Answer: A
Explanation:
Inventory turnover is a ratio that measures how many times a company sells and replaces its inventory in a given period. It is calculated by dividing the cost of goods sold (COGS) by the average inventory value. A higher inventory turnover indicates a more efficient use of inventory, while a lower turnover implies excess inventory or poor sales1.
Based on the values reported in the table, we can calculate the inventory turnover as follows:
Inventory Turnover = COGS / Average Inventory Value = $260,000 / $150,000 = 1.73 Therefore, the correct answer is C.
References := 1 Inventory Turnover - How to Calculate Inventory Turns2
NEW QUESTION # 53
A company assembles kits of hand tools after receipt of the order from distributors and uses two-level master scheduling. The appropriate levels of detail for the forecasts that are input to master scheduling would be total number of kits and:
- A. specific kit configurations.
- B. each unique tool.
- C. raw material requirements.
- D. percentage of total for each tool.
Answer: A
Explanation:
A company that uses two-level master scheduling has a master production schedule (MPS) for the end items (kits) and a final assembly schedule (FAS) for the components (tools). The forecasts that are input to master scheduling should reflect the total number of kits and the specific kit configurations, as these determine the demand for the components. The other options are not relevant for master scheduling, as they do not reflect the end item demand or the bill of materials structure. References: EXAM CONTENT MANUAL PREVIEW, page 10, section 4.1.2. Manufacturing Planning and Control for Supply Chain Management: The CPIM Reference, Second Edition, page 163, section 6.2.
NEW QUESTION # 54
A company's primary performance objective Is flexibility. Which of the following measurements is most important?
- A. Schedule adherence
- B. Cycle time
- C. Machine changeover time
- D. Labor productivity
Answer: C
Explanation:
Flexibility is the ability of a process or system to adapt to changes in customer demand, product mix, or production volume. A flexible process can respond quickly and efficiently to these changes, minimizing disruptions and costs. One of the key measurements of flexibility is machine changeover time, which is the time required to switch a machine or equipment from producing one type of product to another. A shorter machine changeover time means a higher level of flexibility, as the process can accommodate different products or orders without wasting time or resources. This aligns with CPIM's focus on plan, manage, and execute detailed schedules and manage quality, continuous improvement, and technology. References: The concepts are covered in detail in Module 5: Detailed Scheduling and Planning (1 and Module 6: Quality, Continuous Improvement, and Technology (2. You can also find more information about flexibility and machine changeover time from these sources: 3, 4, and 5.
NEW QUESTION # 55
A part is sold as a service part, and It is also used as a component In another part. Which of the following statements about the planning for this part is true?
- A. The material requirements for the part will be understated.
- B. Its low-level code is zero.
- C. It shouldn't have any safety stock.
- D. The service part demand can be included In the gross requirements.
Answer: D
Explanation:
The service part demand can be included in the gross requirements for the part. Gross requirements are the total demand for an item derived from all sources, such as customer orders, dependent demand, forecast, or safety stock. Service part demand is the demand for an item that is used to replace or repair a product after it has been sold to the customer. Service part demand is independent of the production of other items, and it can be forecasted based on historical data, warranty information, or customer contracts. Service part demand can be added to the gross requirements for the part, along with the dependent demand from the other part that uses it as a component.
Option A is not correct, because the low-level code of the part is not zero. Low-level code is the lowest level in the bill of material (BOM) at which an item appears as a component. An item that is not a component of any other item has a low-level code of zero. An item that is a component of another item has a low-level code equal to one plus the low-level code of the parent item. In this case, the part is a component of another part, so its low-level code is at least one.
Option B is not correct, because the material requirements for the part will not be understated. Material requirements are the net requirements for an item after deducting the available inventory and scheduled receipts from the gross requirements. If the service part demand is included in the gross requirements, the material requirements will reflect the true demand for the part. If the service part demand is not included, the material requirements will be understated, and the part may face stockouts or backorders.
Option D is not correct, because the part should have some safety stock. Safety stock is the extra inventory held to protect against uncertainties in demand, supply, or lead time. Safety stock can help reduce the risk of stockouts, improve customer service, and buffer against variability. The part should have some safety stock to account for the fluctuations in the service part demand, which may depend on factors such as product failure rate, customer behavior, or environmental conditions.
NEW QUESTION # 56
A plant uses a level production strategy due to the high costs of hiring and letting go of skilled employees. The constrained resource is due to be upgraded in the fourth month of the planning horizon, and that will reduce capacity for that month by 17%.
Which of the following actions would be appropriate in this situation to maintain current levels of customer service and gross margin?
- A. Defer the upgrade to a period beyond the planning time fence.
- B. Increase planned production for the next three periods.
- C. Defer the upgrade to the period in which the highest stock level is planned.
- D. Increase planned production from the fifth period on.
Answer: B
Explanation:
A level production strategy is a manufacturing strategy where a company produces a fixed number of products at a fixed rate1. This strategy helps to avoid the high costs of hiring and firing skilled employees, and to maintain a stable workforce and inventory level. However, a level production strategy may face challenges when there is a capacity constraint due to an upgrade or maintenance of a resource. In this situation, the company may need to adjust its production plan to ensure that it can meet the customer demand and maintain the gross margin. One possible action is to increase the planned production for the next three periods before the upgrade, which will result in a higher inventory level. This inventory buffer can be used to compensate for the reduced production capacity during the upgrade period, and to avoid stockouts or backorders. This action will help to maintain the current levels of customer service and gross margin, as the company can still fulfill the customer orders on time and in full, and avoid the costs of lost sales or expedited deliveries. Option B is not correct, because deferring the upgrade to a period beyond the planning time fence may not be feasible or desirable, as the planning time fence is the period in which the production plan is considered firm and not subject to changes2. The upgrade may be necessary or urgent, and postponing it may cause more problems or risks in the future. Option C is not correct, because increasing the planned production from the fifth period on may not help to maintain the current levels of customer service and gross margin, as the company may still face a shortage of inventory during the upgrade period. Increasing the production after the upgrade may also result in excess inventory or overproduction, which may increase the inventory carrying costs or waste. Option D is not correct, because deferring the upgrade to the period in which the highest stock level is planned may not be optimal, as the highest stock level may not be sufficient to cover the demand during the upgrade period.
Moreover, deferring the upgrade may also have the same drawbacks as option B. References: 1 Guide to Level Production Strategy - Welp Magazine 3 2 Planning Time Fence | SAP Help Portal 4
NEW QUESTION # 57
A newer automotive supplier has not fully developed its information technology (IT) systems. The supplier has Just received a contract from a large automotive manufacturer which requires the supplier to use electronic data interchange (EDI) transactions for receiving orders, sending advance ship notices (ASNs), and receiving invoice payments. What strategy can the supplier adopt to immediately meet the EDI requirements?
- A. Negotiate using email as an alternative with the customer.
- B. Claim hardship and ask the automotive manufacturer for a waiver.
- C. Use current third-party logistics provider (3PL) to handle the EDI transactions.
- D. Select, install, and implement EDI software.
Answer: C
Explanation:
The largest customer order that could be accepted for delivery at the end of week 3 without making changes to the master production schedule (MPS) is 63. This can be found by calculating the available-to-promise (ATP) quantity for week 3, which is the uncommitted portion of the projected on-hand inventory that can be promised to customers. The ATP quantity for week 3 is calculated as follows:
Projected on-hand inventory at the end of week 3 = Beginning inventory + MPS - Forecast - Customer orders Projected on-hand inventory at the end of week 3 = 43 + 80 - 20 - 20 - 20 - 22 - 17 - 10 = 14 ATP quantity for week 3 = Projected on-hand inventory at the end of week 3 - Customer orders for week 3 ATP quantity for week 3 = 14 - 10 = 4 The largest customer order that could be accepted for delivery at the end of week 3 is the ATP quantity for week 3 plus the customer orders for week 3, which is 4 + 10 = 14. However, this is not one of the options given in the question. Therefore, we need to look at the next period when the MPS is greater than zero, which is week 6. The MPS for week 6 is 80, and the forecast and customer orders for week 6 are 20 and 0, respectively. Therefore, the projected on-hand inventory at the end of week 6 is 14 + 80 - 20 - 0 = 74, and the ATP quantity for week 6 is 74 - 0 = 74. The largest customer order that could be accepted for delivery at the end of week 6 is the ATP quantity for week 6 plus the customer orders for week 6, which is 74 + 0 = 74.
However, this is also not one of the options given in the question. Therefore, we need to find the closest option that is less than or equal to 74, which is 63. Hence, the answer is B. 63. References: Available-to-Promise (ATP) | APICS Dictionary Term of the Day, APICS CPIM 8 Planning and Inventory Management | ASCM
NEW QUESTION # 58
Fishbone diagrams would help a service organization determine:
- A. differences in the performance of employees.
- B. the decomposition of customer return rates with seasonality.
- C. the proper level of service for a customer segment.
- D. the source of a quality-of-service issue.
Answer: D
Explanation:
Fishbone diagrams would help a service organization determine the source of a quality-of-service issue. A fishbone diagram, also known as a cause-and-effect diagram or an Ishikawa diagram, is a tool for identifying and analyzing the root causes of a problem or an effect. It uses a fish-shaped diagram to display the potential causes of a problem in different categories, such as people, processes, equipment, environment, etc. A fishbone diagram can help a service organization to determine the source of a quality-of-service issue by allowing the organization to brainstorm and organize the possible factors that may affect the quality of the service delivered to the customers, such as staff training, customer feedback, service standards, equipment maintenance, etc. A fishbone diagram can also help the organization to prioritize and test the most likely causes, and to develop and implement solutions to improve the quality of service12. References: 1 What is a Fishbone Diagram? Ishikawa Cause & Effect Diagram | ASQ 3 2 CPIM Exam References - Association for Supply Chain Management 1
NEW QUESTION # 59
A reduction In purchased lot sizes will reduce which of the following items?
- A. Setuptimes
- B. Frequency of orders
- C. Inventory levels
- D. Reorder points (ROPs)
Answer: C
Explanation:
A reduction in purchased lot sizes means ordering smaller quantities of materials more frequently. This reduces the average inventory level and the carrying cost of inventory. However, it also increases the frequency of orders and the ordering cost. The reorder point (ROP) is the level of inventory that triggers a new order, and it depends on the demand rate, the lead time, and the safety stock. The ROP is not affected by the lot size, unless the demand or the lead time changes. The setup time is the time required to prepare a machine or a process for production, and it is not related to the purchased lot size. References: EXAM CONTENT MANUAL PREVIEW, page 14, section 6.1.2. Manufacturing Planning and Control for Supply Chain Management: The CPIM Reference, Second Edition, page 433, section 12.4.
NEW QUESTION # 60
Which of the following benefits typically will be realized when switching from a functional to a cellular layout?
- A. Products will have faster throughput.
- B. Quality inspections will be reduced.
- C. Equipment utilization will be higher.
- D. Capital expenditures will be reduced.
Answer: A
Explanation:
A cellular layout is a workplace organization in which processes are organized by the product or product family, rather than by the type of work (function). A cellular layout consists of cells, which are groups of machines or workstations that are located close to each other and perform all the operations required for a product or product family. A cellular layout has several advantages over a functional layout, such as reduced material handling, improved quality, increased flexibility, and enhanced employee involvement. One of the main benefits of a cellular layout is that products will have faster throughput. Throughput is the rate at which products are produced and delivered to the customers. A cellular layout can increase the throughput by reducing the travel distance, the waiting time, and the setup time for the products. A cellular layout can also improve the production flow, the synchronization, and the visibility of the products. The other options are not correct, as they are not the typical benefits of switching from a functional to a cellular layout, but rather possible drawbacks or trade-offs of switching from a functional to a cellular layout:
Equipment utilization will be higher: This is unlikely to be true, as a cellular layout may result in lower equipment utilization than a functional layout. Equipment utilization is the ratio of the actual output of a machine to its maximum possible output. A cellular layout may reduce the equipment utilization by dedicating some machines to specific products or product families, which may limit the sharing of machines across different products or product families. A cellular layout may also reduce the equipment utilization by balancing the workload among the machines within a cell, which may prevent some machines from operating at their full capacity.
Quality inspections will be reduced: This may or may not be true, depending on the quality level and the quality control system of the production process. A cellular layout may reduce the quality inspections by improving the quality of the products, as the workers in a cell are more responsible, skilled, and empowered to perform the operations and to detect and correct the defects. However, a cellular layout may also increase the quality inspections by requiring more frequent and rigorous checks of the products, as the products move from one cell to another or from one stage to another.
Capital expenditures will be reduced: This is unlikely to be true, as a cellular layout may result in higher capital expenditures than a functional layout. Capital expenditures are the costs of acquiring or upgrading the fixed assets, such as machines, equipment, or facilities. A cellular layout may increase the capital expenditures by requiring more machines or equipment to create the cells, especially if the machines or equipment are specialized or customized for specific products or product families. A cellular layout may also increase the capital expenditures by requiring more space or facilities to accommodate the cells, especially if the cells are dispersed or isolated from each other. References:
[CPIM Part 2 - Section B - Topic 4 - Sustainability]
Cellular Manufacturing: Definition, Examples & Advantages - Katana
Cellular or Functional Layout? - IGI Global
Functional Layout - Velaction
What is cell layout? - Studybuff.com
NEW QUESTION # 61
Which of the following actions best supports a company's strategic focus on delivery speed to improve competitive advantage?
- A. Developing flexible operations
- B. Implementing rapid process improvements
- C. Maintaining high-capacity utilization
- D. Cross-training workers
Answer: A
Explanation:
Developing flexible operations best supports a company's strategic focus on delivery speed to improve competitive advantage. Delivery speed is the time it takes for a company to deliver its products or services to the customers after receiving an order. Delivery speed is a key factor in customer satisfaction, retention, and loyalty, as well as a source of differentiation and value creation in the market1. Developing flexible operations means having the ability to adapt to changes in demand, supply, technology, and environment, and to respond quickly and efficiently to customer needs and expectations. Flexible operations can improve delivery speed by reducing lead times, increasing responsiveness, enhancing quality, and minimizing costs23. References: 1 The Shipper's Competitive Advantage of Delivery Speed to Market 4 2 Operations Strategy, 4th ed., 2015, Slack,
N., Lewis, M., ISBN: 978-0273776208 3 CPIM Exam References - Association for Supply Chain Management 1
NEW QUESTION # 62
Under which of the following conditions is excess capacity most likely a good substitute for safety stock?
- A. The cost of excess capacity is less than the cost of an additional unit of safety stock in the same period.
- B. The service level with safety stock is more than the service level with excess capacity.
- C. Lead time for the product is longer than customers are willing to wait.
- D. The cost to maintain one unit in inventory for a year is less than the direct labor cost.
Answer: A
Explanation:
Excess capacity is the amount of capacity that is available beyond the normal or expected demand. Safety stock is the inventory that is held to protect against uncertainties in demand, supply, or lead time. Excess capacity can be a good substitute for safety stock when the cost of excess capacity is less than the cost of an additional unit of safety stock in the same period. This means that the opportunity cost of having idle resources is lower than the carrying cost of holding extra inventory. In this case, excess capacity can be used to produce more units in response to demand fluctuations, rather than relying on safety stock to meet customer orders.
References:
*[CPIM Part 1 Learning System, Module 4: Inventory Management, Section 4.2: Inventory Management Policies and Objectives]
*[CPIM Part 2 Learning System, Module 1: Supply Chain Strategy, Section 1.3: Capacity Management]
NEW QUESTION # 63
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