AICPA Exam CPA-Business Topic 1 Question 100 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 100
Topic #: 1

[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 Kristeen at Sep 18, 2024, 07:39 PM

Limited Time Offer

25%

Off

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

Contribute your Thoughts:

Submit Cancel

Celestina

2 months ago

This is a real head-scratcher. Maybe the company should just stock up on safety tacos instead of safety inventory. Muy delicioso!

upvoted 0 times

Nichelle

21 days ago

C) Costs of running out of stock decreases.

upvoted 0 times

...

Janey

24 days ago

B) Variability of sales decreases.

upvoted 0 times

...

Zachary

1 months ago

A) Cost of carrying inventory decreases.

upvoted 0 times

...

Marget

2 months ago

I'm going to go with A. If the cost of carrying inventory goes down, the company can afford to hold more in safety stock.

upvoted 0 times

...

Janae

2 months ago

C is the right answer. If the costs of running out of stock decrease, the company has less incentive to hold a large safety stock.

upvoted 0 times

Rolf

1 months ago

Definitely, having too much safety stock can tie up a lot of capital.

upvoted 0 times

...

Margot

1 months ago

That makes sense. It's all about balancing costs and risks.

upvoted 0 times

...

Jeanice

2 months ago

C is the right answer. If the costs of running out of stock decrease, the company has less incentive to hold a large safety stock.

upvoted 0 times

...

Hayley

2 months ago

Haha, this is a trick question! The answer is obviously D. The shorter the transit time, the less inventory you need to hold as a buffer.

upvoted 0 times

...

Amie

2 months ago

I think the answer is B. If the variability of sales decreases, the company would need more safety stock to buffer against the uncertainty.

upvoted 0 times

Lawrence

2 months ago

D) Length of time that goods are in transit decreases.

upvoted 0 times

...

Isabella

2 months ago

C) Costs of running out of stock decreases.

upvoted 0 times

...

Sherita

2 months ago

B) Variability of sales decreases.

upvoted 0 times

...

Edwin

2 months ago

A) Cost of carrying inventory decreases.

upvoted 0 times

...

Merrilee

2 months ago

But wouldn't the cost of carrying inventory decreasing also play a role in determining the amount of safety stock to hold?

upvoted 0 times

...

Janna

3 months ago

I agree with Jamey. When sales are more predictable, it makes sense to hold more safety stock to avoid stockouts.

upvoted 0 times

...

Jamey

3 months ago

I think the amount of inventory in safety stock would increase as the variability of sales decreases.

upvoted 0 times

...