ECONOMICS

Previous
Next

COST ACCOUNTING

INVENTORY AND PRODUCTION MANAGEMENT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
An organization uses a periodic review system to manage an item. A review is made every three weeks, lead time is one week, and safety stock is based on the MAD. The company wants to change to an order point system. Which of the following statements about safety stock in the order point system is true if the same level of customer service is to be maintained?
A
it will increase
B
it will remain the same
C
it will decrease
D
it is not needed
Explanation: 

Detailed explanation-1: -The fixed-period inventory model can have a stockout during the review period as well as during the lead time, which is why fixed-period systems require more safety stock than fixed-quantity systems.

Detailed explanation-2: -Inventory carrying costs are the costs related to storing and maintaining its inventory over a certain period of time.

Detailed explanation-3: -For which inventory type is a stockout most critical? The types of inventory discussed in the text are raw materials, work-in-process, and finished goods. Answers may vary as to the most critical stockout.

Detailed explanation-4: -D. the higher the profit margin per unit, the higher the safety stock necessary. The answer is true regarding safety stock.

There is 1 question to complete.
Previous
Next