AICPA Exam CPA-Business Topic 2 Question 16 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 16
Topic #: 2

[All CPA-Business Questions]

The amount of inventory that a company would tend to hold in safety stock would increase as the:

ACost of carrying inventory decreases.

BVariability of sales decreases.

CCosts of running out of stock decreases.

DLength of time that goods are in transit decreases.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. As the cost of carrying inventory decreases, safety stock would tend to increase to reduce the risk of stock outs.

Choice 'b' is incorrect. As sales become more predictable (sales variability decreases), less (not more) safety stock would be needed because the risk of stock outs would have decreased.

Choice 'c' is incorrect. If the cost of stock outs decrease, safety stock would decrease.

Choice 'd' is incorrect. If lead-time decreases, safety stock would decrease.

by Chauncey at May 06, 2022, 08:46 AM

Limited Time Offer

25%

Off

Get Premium CPA-Business Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Currently there are no comments in this discussion, be the first to comment!