IMANET CMA Exam - Topic 5 Question 97 Discussion

Actual exam question for IMANET's CMA exam

Question #: 97
Topic #: 5

The Stewart Co. uses the economic order quantity (EOQ) model for inventory management.A decrease in which one of the following variables would increase the EOQ?

AAnnual sales.

BCost per order.

CSafety stock level.

DCarrying costs.

Show Suggested Answer

Suggested Answer: D

A firm enjoys a tax benefit upon recognizing a loss on disposal because the loss reduces book income. The old equipments book value is historical cost ($220,000) minus accumulated depreciation ($208,000).

The tax benefit is the accrual-basis loss on the disposal times the effective tax rate.

by Alonzo at Sep 18, 2024, 02:19 PM

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Lonny

6 months ago

I thought safety stock would play a bigger role here.

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Alisha

6 months ago

Just to clarify, it's definitely D.

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Ines

6 months ago

Wait, isn't that counterintuitive?

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Norah

7 months ago

Totally agree, it's all about cost efficiency.

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Nguyet

7 months ago

Decreasing carrying costs increases EOQ!

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Mollie

7 months ago

I’m leaning towards option D, carrying costs. If they decrease, wouldn’t that mean we need to order more to maintain inventory levels?

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Jerry

7 months ago

I feel like safety stock levels don't really impact EOQ directly, but I could be wrong. It’s all a bit confusing.

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Merilyn

7 months ago

I remember practicing a similar question where we discussed how carrying costs affect EOQ. I think if carrying costs decrease, EOQ would actually decrease, right?

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Van

8 months ago

I think a decrease in annual sales might increase the EOQ, but I'm not entirely sure how that works in practice.

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Deeanna

8 months ago

I'm pretty confident the answer is B. The EOQ formula is designed to minimize the total costs of ordering and holding inventory, so a decrease in the cost per order would lead to a higher optimal order quantity.

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Elbert

8 months ago

Okay, let me walk through this step-by-step. The EOQ formula is Q = square root of (2*D*S/H), where D is annual demand, S is the cost per order, and H is the holding cost per unit. If S (the cost per order) decreases, then the EOQ would increase. So the answer is B.

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Sang

8 months ago

Hmm, I'm not too sure about this one. The EOQ formula has a lot of variables, so I'll need to think through it carefully to figure out which one would increase the EOQ if it decreased.

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Vicki

8 months ago

I think the answer is B. A decrease in the cost per order would increase the EOQ, since that's one of the variables in the EOQ formula.

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Jenelle

8 months ago

Hmm, I'm a little unsure about this one. I know we covered global display settings in class, but I can't quite remember the specific term they're looking for here. Let me think it through step-by-step.

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Pearlene

1 year ago

Hmm, this reminds me of that time I tried to calculate the perfect number of cookies to buy for a party. Spoiler alert: I ended up with way too many.

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Walton

1 year ago

Alright, time to channel my inner accountant. I'm going with D - a decrease in carrying costs. The lower the holding costs, the more you'll want to order at once.

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Beatriz

11 months ago

I see your point, but I still think D is the best choice here. Lower carrying costs have a bigger impact on EOQ.

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Magdalene

11 months ago

But what about B - cost per order? Wouldn't a decrease in that also increase the EOQ?

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Darrin

11 months ago

I think you're right, D makes sense. Lower carrying costs means ordering more at once.

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Allene

1 year ago

Wait, what? This is too much math for me. I'm just going to guess and hope for the best.

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Joseph

1 year ago

C, definitely C. Lowering the safety stock level would mean you need to order more, so the EOQ would go up. Easy peasy.

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Kate

11 months ago

So, it's a balance between those two variables to optimize the EOQ.

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Filiberto

11 months ago

Yes, that's true. Both lowering safety stock level and increasing cost per order would increase the EOQ.

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Loren

11 months ago

But wouldn't increasing the cost per order also increase the EOQ?

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Willard

12 months ago

I agree, lowering the safety stock level would definitely increase the EOQ.

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Vallie

1 year ago

I'm pretty sure it's B - a decrease in the cost per order would increase the EOQ. Gotta love those inventory management models!

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Lore

11 months ago

I agree, it's interesting how small changes in variables can have a big impact on the EOQ.

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Leah

12 months ago

Yeah, that makes sense. It's all about finding that balance in inventory management.

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Michal

12 months ago

I think you're right, a decrease in the cost per order would definitely increase the EOQ.

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Owen

1 year ago

Hmm, a decrease in carrying costs seems like the obvious answer here. The EOQ formula is all about balancing ordering and holding costs.

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Chauncey

11 months ago

C: So, if carrying costs go down, the EOQ would go up to compensate for that change.

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Pansy

11 months ago

B: Yeah, that makes sense. The EOQ model is all about finding that balance between ordering and holding costs.

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Francene

1 year ago

A: I think a decrease in carrying costs would definitely increase the EOQ.

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William

1 year ago

I think a decrease in carrying costs would increase the EOQ because it would make it more expensive to hold inventory.

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Kaitlyn

1 year ago

I disagree, I believe a decrease in annual sales would increase the EOQ.

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Florinda

1 year ago

I think a decrease in cost per order would increase the EOQ.

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