CPIM Practice Exam

What does the orders per period formula calculate?

1. Average inventory levels

2. Period demand divided by order quantity

3. Stock levels needed to satisfy demand

4. The total cost of ordering

The correct answer is: Period demand divided by order quantity

The orders per period formula calculates how many orders are placed in a specific time period based on demand. It determines the number of units required to satisfy demand within that period divided by the order quantity, providing a clear indication of how many orders need to be placed to meet anticipated sales. This information is crucial for inventory management, allowing businesses to maintain optimal stock levels without over-ordering or under-ordering, which can lead to increased costs or lost sales. The context for other options reveals that choosing average inventory levels relates to measuring stock held over time, while stock levels needed to satisfy demand focus on the quantity of inventory necessary to meet expected sales. The total cost of ordering encompasses the expenses related to placing orders, but it doesn't provide the direct calculation of order frequency within a given timeframe like the orders per period formula does.