AICPA CPA-Business Exam - Topic 2 Question 15 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 15
Topic #: 2

[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 Carey at May 03, 2022, 02:12 PM

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5 months ago

Hmm, this is a tricky one. I'll need to carefully consider the options and think about the key characteristics of a ready product backlog item.

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