MCQs on “HML Analysis” of Inventory

Here is the set of Multiple Choice Questions related to HML analysis. It contains practical knowledge improvement capability. So, you will have more ideas on this topic when you trying to crack an interview or exam.

Illustration of Inventory Analysis from Freepik

MCQ and Answers on HML Analysis

Like ABC analyses, HML Analysis is a technique used in inventory management to classify items based on their importance such as High, Medium, and Low.

After reading these MCQs and their answers you will get some idea about the following topics,

  • Purpose & goal of the HML analysis
  • How it is categorized
  • Risks associated with it.

Let’s get into them,

1. What is the primary purpose of HML analysis when applied to inventory?

a) To categorize inventory items by their historical selling price
b) To categorize inventory items by their degree of risk
c) To determine the cost of goods sold for each inventory item
d) To identify slow-moving or excess inventory

Answer: B

2. How is inventory categorized in HML analysis?

a) By product category
b) By supplier
c) By degree of risk
d) By unit cost

Answer: C

3. What is the expected return on an inventory item classified as “High Risk” in HML analysis?

a) Low
b) Moderate
c) High
d) Unpredictable

Answer: C

4. What are some of the benefits of using HML analysis when evaluating inventory?

a) Provides a clear and objective method for evaluating inventory risk and potential returns
b) Allows for easy identification of slow-moving or excess inventory
c) Can aid in making decisions about purchasing and production
d) All the above

Answer: D

5. Which of the following is NOT typical of a “High-Growth, Low-Risk” inventory item?

a) High sales growth
b) High gross margin
c) Low liquidity
d) Low inventory turnover

Answer: C

6. How is inventory risk typically defined in HML analysis?

a) The likelihood of the inventory becoming obsolete
b) The likelihood of the inventory not selling
c) The likelihood of the inventory becoming overstocked
d) The likelihood of the inventory experiencing price fluctuations

Answer: B

7. What is the primary goal of the HML analysis when applied to inventory?

a) To predict future demand for inventory items
b) To identify the most profitable inventory items
c) To identify and manage the risk associated with carrying inventory
d) To optimize inventory levels

Answer: C

8. How is the inventory risk level determined in HML analysis?

a) By analyzing historical sales data
b) By reviewing supplier creditworthiness
c) By conducting a financial analysis
d) By reviewing industry trends

Answer: A

9. What are some of the consequences of carrying a lot of high-risk inventory?

a) Reduced ability to respond to changes in demand
b) Increased holding costs
c) Reduced flexibility in pricing strategy
d) All of the above

Answer: D

10. What are some actions that a company can take to reduce the risk associated with its inventory?

a) Increase its inventory turnover
b) Reduce its inventory levels
c) Implement a just-in-time inventory system
d) All of the above

Answer: D

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