AICPA Exam CPA-Business Topic 3 Question 99 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 99
Topic #: 3

[All CPA-Business Questions]

The level of safety stock in inventory management depends on all of the following, except the:

ALevel of uncertainty of the sales forecast.

BLevel of customer dissatisfaction for back orders.

CLevel of uncertainty in lead-time for stock shipments.

DCost to reorder stock.

Show Suggested Answer

Suggested Answer: D

Choice 'd' is correct. Reorder costs do not impact the level of safety stock.

Choices 'a', 'b', and 'c' are incorrect. Safety stock levels are affected by:

1. Uncertain sales forecasts - greater uncertainty means a higher level of safety stock should be carried.

2. Dissatisfaction of customers - if customers are dissatisfied with back orders (which occur when there are stock outs), then more safety stock should be carried to prevent stock outs.

3. Uncertain lead times - greater uncertainty means a higher level of safety stock is needed.

by Floyd at Sep 16, 2024, 05:28 PM

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Alba

4 months ago

I'd like to see the person who thinks the cost to reorder doesn't affect safety stock levels. That's like saying the price of gas doesn't affect how much you drive.

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Barrie

5 months ago

Well, if you don't factor in the cost to reorder, how are you supposed to balance the tradeoffs between holding too much inventory and running out? This question is too easy.

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Tamar

3 months ago

C) Level of uncertainty in lead-time for stock shipments.

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Krissy

4 months ago

B) Level of customer dissatisfaction for back orders.

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Junita

4 months ago

A) Level of uncertainty of the sales forecast.

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Elena

5 months ago

Haha, the cost to reorder stock? That's like saying the cost of the food depends on how hungry you are. Clearly, the correct answer is D.

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Ashton

4 months ago

C) Level of uncertainty in lead-time for stock shipments.

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Lashanda

4 months ago

B) Level of customer dissatisfaction for back orders.

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Josphine

4 months ago

A) Level of uncertainty of the sales forecast.

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Iluminada

5 months ago

I think it's A) Level of uncertainty of the sales forecast because that affects how much safety stock we need.

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Audrie

5 months ago

The level of safety stock depends on all those factors, except the cost to reorder stock. That's just the cost of doing business, not a factor in determining safety stock levels.

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