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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]
Topic #: 2
The amount of inventory that a company would tend to hold in safety stock would increase as the:
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.
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