MCQs Course for SEBI Grade A 2020 - Paper 2

https://educare247.com/courses/18/

1. What do you mean by Inventory?

1. stock
2. warehouse capacity
3. materials
4. None of the above

Answer: 1

Inventory or stock is the goods and materials that a business holds for the
ultimate goal of resale. Inventory management is a discipline primarily
about specifying the shape and placement of stocked goods.

2. Using 'lower of cost and net realizable value' for the purpose of
inventory valuation is the implementation of which of the following
concepts?

1. The going concern concept

2. The separate entity concept
3. The prudence concept
4. Matching concept

Answer: 3

A cash book with a cash bank and discount column is commonly referred to
as The prudence concept. Under the prudence concept, do not overestimate
the amount of revenues recognized or underestimate the amount of
expenses.

3. Which of the following will be figured out in the valuation of

inventories?
 1. Purchase price
2. Opportunity cost
3. Realizable value
4. Net realizable value

Answer: 4

The value of inventories or stock is figured out at the lower of cost and net
realizable value.

Net realizable value (NRV) is the value of an asset that can be realized upon
the sale of the asset, less a reasonable estimate of the costs associated with
the eventual sale or disposal of the asset.

4. Which of the following indicates a higher inventory ratio?

1. Better inventory management

2. Quicker turnover
3. Both A and B
4. None of the above

Answer: 3

A higher inventory ratio indicates Better inventory management and

Quicker turnover.

5. Which of the following is not an inventory?

1. Machines
2. Raw material
3. Finished products
4. Work- in- Progress

Ans: 1
Inventory is an accounting term that refers to goods that are in various
stages of being made ready for sale, including Finished goods (that are
available to be sold) Work-in-progress (meaning in the process of being
made) Raw materials (to be used to produce more finished goods).

6. The following classes of costs are usually involved in inventory

decisions except?

1. Ordering cost
2. Holding cost
3. Cost of shortages
4. Machining cost

Ans: 4

Inventory is usually a business's largest asset. The instant inventory

decision are established, they become an important input to the budgeting
system. Inventory decisions involve a delicate balance between three
classes of costs: ordering costs, holding costs, and shortage costs.

7. Under which heading the cost of insurance and taxes will be

included?

1. Cost of ordering
2. Set up cost
3. Inventory carrying cost
4. Cost of shortages

Ans: 3

carrying cost of inventory or holding cost refers to the total cost of holding
inventory. This includes warehousing costs such as rent, utilities and
salaries, financial costs such as opportunity cost, and inventory costs
related to perishability, shrinkage (leakage) and insurance. It also includes
cost of insurance and taxes.

8. What do you understand by ‘Buffer stock’?

 1. Half of the actual stock
2. At which the ordering process should start
3. Minimum stock level below which actual stock should not fall
4. Maximum stock in inventory

Ans: 3

A buffer stock is a system or scheme which buys and stores stocks at times
of good harvests to prevent prices falling below a target range (or price
level).

9. How to calculate the minimum stock level?

1. Reorder level – (Nornal consumption x Normal delivery time)

2. Reorder level + (Nornal consumption x Normal delivery time)
3. (Reorder level + Nornal consumption) x Normal delivery time
4. (Reorder level + Nornal consumption) / Normal delivery time

Ans: 1

Minimum Level is also known as buffer stock level or safety stock level.
When inventory balance falls below this level, production functions could
be disrupted and the company may fail to deliver the product on due time.
This is the lowest inventory balance that should always be maintained to
avoid the chances of sudden stoppage of production.

Formula is :Reorder level – (Nornal consumption x Normal delivery time)

10. Which of the following is true for Inventory control?

1. Economic order quantity has minimum total cost per order

2. Inventory carrying costs decrease with quantity per order
3. Ordering cost decreases with size
4. All of the above

Ans: 4
Inventory control is the process of keeping the right number of parts and
products in stock to avoid shortages, overstocks, and other costly problems.

Keeping control of your stock so that you’re able to hold the least amount of
inventory in your warehouses makes for easier organization, lower
holding/carrying costs, better cash flow, reduce ordering cost, and more
space within your warehouses. When it comes to inventory control
procedures, less is definitely more.

11. Which of the following time period between placing an order and
its receipt in stock?

1. Lead time
2. Carrying time
3. Shortage time
4. Overtime

Ans: 1

Lead time is the amount of time that passes from the start of a process until
its conclusion. Companies review lead time in manufacturing, supply chain
management, and project management during pre-processing, processing,
and post-processing stages. By comparing results against established
benchmarks, they can determine where inefficiencies exist.

12. What is the formula of the Re-ordering level?

1. Maximum consumption rate x Maximum re-order period

2. Minimum consumption rate x Minimum re-order period
3. Maximum consumption rate x Minimum re-order period
4. Minimum consumption rate x Maximum re-order period

Ans: 1

Reorder level of stock (also known as reorder point or ordering point) in

a business is a preset level of stock or inventory at which the business
places a new order with its suppliers to obtain the delivery of raw materials
or finished goods inventory.

Every business has to maintain a certain level of raw materials or finished

goods in its store. This is done in order to sustain the continuity of
production in case of raw materials and the continuity of sales in case of
finished goods. The formula as follows:

Maximum consumption rate x Maximum re-order period

13. If purchase order lead time is 35 minutes and the number of units
sold per time is 400 units then reorder point will be:

A. 14000 units

B. 14500 units

C. 15000 units

D. 15500 units

Answer: A

The reorder point (ROP) is the level of inventory which triggers an action
to replenish that particular inventory stock. It is a minimum amount of an
item that a firm holds in stock, such that, when stock falls to this amount,
the item must be reordered. It is normally calculated as the forecast usage
during the replenishment lead time plus safety stock.

400 units*35=14,000 units

14. Which of the following management relates to coordinating,

controlling, and planning activities of the flow of inventory?

A decisional management

B throughput management

C inventory management

D manufacturing management
Ans: C

Inventory management is the supervision,,planning and controlling of non-

capitalized assets, or inventory, and stock items. As a component of supply
chain management, inventory management supervises the flow of goods
from manufacturers to warehouses and from these facilities to point of
sale. A key function of inventory management is to keep a detailed record
of each new or returned product as it enters or leaves a warehouse or point
of sale.

Organizations from small to large businesses can make use of inventory

management to manage their flow of goods. There are numerous inventory
management techniques, and using the correct one can lead to providing
the correct goods, at the correct amount, place and time.

15. Which of the following classified as cost of product failure, error

prevention, and appraisals?

A stocking costs

B stock-out costs

C costs of quality

D None of the above

Answer: C

Cost of Quality (COQ) is a measure that quantifies the cost of

control/conformance and the cost of failure of control/non-conformance. In
other words, it sums up the costs related to error prevention and detection
of defects and appraisals.

16. Which of the following component will come under purchasing

costs?

A incoming freight

B storage costs

C insurance
D spoilage

Answer: c

It is important when you decide to buy a home that you have a full
understanding of the costs associated with your purchase. People often
assume the only cost of buying a home in our real estate market is the price
of the home, and that is it.

17. Find out the correct answer when An average inventory in units is
multiplied with the annual relevant cost of each unit?

A. annual irrelevant ordering costs

B. annual relevant carrying costs

C. annual relevant ordering costs

D. annual irrelevant carrying costs

Answer: B

An average inventory in units is multiplied with annual relevant carrying

cost of each unit to calculate annual relevant carrying costs. Carrying costs
are the costs of holding inventory and include maintenance, specifically in
regard to perishable items, and storage costs.

18. Which type of inventory include spare parts?

1. WIP
2. Raw Materials
3. MRO
4. Finished Goods

Ans: 3

The MRO acronym is used to refer to the maintenance, repair, and

operations used by a company to create an end product.
MRO may include spare parts, equipment such as pumps and valves,
consumables such as cleaning supplies, plant upkeep supplies such as
lubricants, and activities completed to restore or maintain the functioning
of needed equipment. Anything used in the manufacturing of, but not
employed in, a final product may be considered MRO.

19. What does MRP expand to?

1. Master Resources Production

2. Materials Requirements Planning
3. Management Reaction Planning
4. Manufacturing Resource Planning

Ans: 2

Material requirements planning (MRP) is a system for calculating the

materials and components needed to manufacture a product. It consists of
three primary steps: taking inventory of the materials and components on
hand, identifying which additional ones are needed, and then scheduling
their production or purchase.

20. What is BOM in MRP?

1. The Product structure showing how each end product is manufactured

2. A list of required safety stock items
3. The sum of stock-on-hand and work-in-progress
4. The difference between planned receipts and current stocks

Ans: 1

From Stock -> Items -> An item's details or Production planning -> BOM, it
is possible to add a bill of materials (BOM) to your products.

A Bill of Materials lays the foundation for:-

 material planning for production,
planning material purchases,
estimation of material costs when quoting.

21. Which factor affects inventory replenishment order?

1. Lead time
2. Number of orders
3. Lot size
4. All of the above

Ans: 4

Replenishment is the movement of inventory from upstream or reserve

product storage locations to downstream or primary storage, picking and
shipment locations. The purpose of replenishment is to keep inventory
flowing through the supply chain by maintaining efficient order and line
item fill rates. Factors are affecting replenishment order like lead time,
number of orders and lot size.

22. What type of material loss is counted on account of loss during

grinding?

1. Operational
2. Technical
3. Depends upon the resources involved
4. Depends upon the process type

Ans: 3

Losses of material during handling, storage or manufacturing are called as

material losses in cost accounting. We could classified material losses into
two parts i.e. normal losses and abnormal losses. type of material loss is
counted on account of loss during grinding depend upon the resources
involved.
23. What does FIFO mean?

1. Finished stock in finished stock out

2. Fabrications inward fabrications outward
3. Final input final output
4. First in first out

Ans: 4

First In, First Out (FIFO) is an accounting method in which assets

purchased or acquired first are disposed of first. FIFO assumes that the
remaining inventory consists of items purchased last. An alternative to
FIFO, LIFO is an accounting method in which assets purchased or acquired
last are disposed of first.

24. Which type of inventory system is updated inventory system?

1. Periodic inventory system

2. Contingency inventory system
3. LIFO
4. Perpetual inventory system

Ans: 1

The periodic inventory method is one in which inventory data is updated

after a specific interval of time, usually once a year. Data is entered into the
inventory systems after a specific period of time.

25. What is the principal criterion used to distinguish between tangible

assets and inventories?

1. The physical substance of the asset

2. The acquisition cost of the asset
3. The nature of the company’s activity, which determines the purpose for
which the asset is held
4. The moment in the accounting period when the asset is acquired
Ans: 3

The principal criterion used to distinguish between tangible assets and

inventories is the nature of the company's activity, which determines the
purpose for which the assets held.

Assets have two big types in the business world, fixed assets, and current
assets. Fixed assets are assets that cannot easily convert into cash. It is used
for more than more years. Fixed assets can be tangible and intangible.
Fixed tangible assets are those assets that are touchable and seeable easily
like building, furniture, etc. The non-tangible fixed assets are those which
cannot be touched like brand and trademark.

Inventory is also called stock which holds in business to sale in the one year
period. Inventory is the current asset because it is expected to convert into
cash within a year.