CPIM Practice Exam

What does the order quantity formula determine?

1. The amount of inventory to be purchased on sale

2. The difference between target level replenishment and on-hand inventory

3. The total inventory that must be ordered every year

4. The speed at which inventory is sold to customers

The correct answer is: The difference between target level replenishment and on-hand inventory

The order quantity formula is primarily used to determine the quantity of inventory that needs to be ordered to meet the demand while considering what is currently available on hand. This involves calculating the difference between the target replenishment level and the current inventory level. By doing so, businesses can ensure that they maintain adequate stock levels without overstocking or running out of essential items. In contrast, the first choice refers to specific purchases influenced by sales events, which is not the core purpose of the order quantity formula. The third choice discusses the total inventory ordered annually, which is more about overall inventory planning and not what the order quantity formula specifies for individual orders. The fourth choice addresses the velocity of sales, an aspect of inventory management but not directly related to determining order quantity. The focus of the order quantity formula lies in ensuring that replenishment levels are appropriately maintained based on current inventory levels.