CPIM-Part-2 Exam Dumps : Certified in Planning and Inventory Management(Part 2)

The inventory turns ratio is a financial metric that measures how efficiently a company manages its inventory. The inventory turns ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory investment. The cost of goods sold is the direct cost of producing or purchasing the goods sold by the company. The average inventory investment is the average value of the inventory held by the company over a period of time. A higher inventory turns ratio indicates a higher inventory turnover and a lower inventory holding cost.

In this case, the company sold 8,400 units last year, and the unit cost is $207. Therefore, the cost of goods sold is:

COGS = Unit cost x Units sold = 207 x 8,400 = $1,738,800

The average inventory investment was $42,000. Therefore, the inventory turns ratio is:

Inventory turns ratio = COGS / Average inventory investment = 1,738,800 / 42,000 = 41.4

To express the inventory turns ratio as a whole number, we can round it to the nearest integer. Therefore, the inventory turns ratio is 5.

References: CPIM Exam Content Manual Version 7.0, Domain 5: Plan and Manage Inventory, Section 5.1: Develop Inventory Plans, Subsection 5.1.2: Describe how to develop an inventory policy (page 44).

Available-to-promise (ATP) is a business function that provides a response to customer order inquiries, based on resource availability1. It generates available quantities of the requested product, and delivery due dates. Therefore, ATP supports order promising and fulfillment, aiming to manage demand and match it to production plans1.

The most appropriate course of action when the customer requests an order of 100 units in Period 1, but the ATP is only 85 units, is to promise the 85 units in Period 1 and the remaining 15 units in the next possible ATP period. This way, the customer can receive a partial fulfillment of their order as soon as possible, and the rest of their order when more inventory becomes available. This approach also avoids overpromising or underdelivering, which can damage customer relationships and satisfaction.

The other options are not appropriate, because they either violate the master schedule, ignore the component availability, or disadvantage another customer. Increasing the MPS quantity in Period 1 by 15 units may not be feasible or desirable, because it may disrupt the production plan, increase costs, or create capacity issues. Promising the 100 units, and then checking on component availability may result in a failure to deliver, if the components are not available or sufficient. Promising the 100 units by removing 15 units from another customer’s order with a smaller revenue value may be unethical or unfair, and may also cause dissatisfaction or complaints from the other customer.

Obsolescence is the loss of value or usefulness of an item due to changes in technology, fashion, customer preferences, or other factors. Obsolescence is considered a carrying cost, because it is an expense associated with holding inventory over a period of time1. Carrying costs are the various costs a business pays for holding inventory in stock, such as warehousing, insurance, taxes, depreciation, and opportunity costs2. Obsolescence can increase the carrying costs of inventory,because it can reduce the demand and sales potential of the item, and may require the item to be written off or sold at a lower price3.

The other options are not considered carrying costs, because they are not related to holding inventory in stock. Setup is the cost of preparing a machine or a process for production. Transportation is the cost of moving goods from one place to another. Scrap rate is the percentage of defective or unusable units produced in a process. These costs are more related to production or distribution activities than inventory holding activities.