CPIM Practice Exam

What formula is used to calculate the ending PAB before the demand time fence?

1. Prior period PAB - scheduled MPS receipt + customer orders

2. Prior period PAB + scheduled MPS receipt - customer orders

3. Prior period PAB + customer orders - planned orders

4. Prior period PAB - customer orders + planned orders

The correct answer is: Prior period PAB + scheduled MPS receipt - customer orders

The correct formula for calculating the ending projected available balance (PAB) before the demand time fence is based on the concept of balancing the available inventory with incoming and outgoing demands. The PAB represents the amount of inventory expected to be available at the end of a specific period. Using the prior period PAB as a starting point, you add any scheduled Master Production Schedule (MPS) receipts, which are the planned incoming quantities that are expected based on the production schedule. This addition is crucial as it increases the inventory available to meet future demands. Next, subtracting customer orders is necessary because these orders represent the demands placed on the inventory; as such, they reduce the available balance. It effectively accounts for what has been sold or allocated to customers, ensuring that inventory calculations reflect real-world expectations accurately. By combining these elements—prior available balance, scheduled receipts, and customer orders—you can effectively project the ending PAB before entering the demand time fence. This approach provides a clear view of inventory levels and aids in effective planning and decision-making in production and inventory management.