CPA Business Environment and Concepts (BEC) : Supply Chain/Reorder Point
Study concepts, example questions & explanations for CPA Business Environment and Concepts (BEC)
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Example Questions
Example Question #7 : Financial Management Process
The amount of inventory that a company would tend to hold in safety stock would increase as the:
Variability of sales decreases
Length of time that goods are in transit decreases
Costs of running out of stock decreases
Cost of carrying inventory decreases
Cost of carrying inventory decreases
The amount of inventory that a company would tend to hold in stock would increase as the cost of carrying inventory decreases.
Example Question #1 : Supply Chain/Reorder Point
When selecting suppliers before implementing a just-in-time (JIT) purchasing system, a company must take extreme care because a JIT purchasing system:
Shifts responsibility for order taking and fulfillment to the supplier
Relies on suppliers to deliver products when needed
Relies on competent suppliers, which eliminates the need for backflush costing
Depends on a great number of highly motivated suppliers
Relies on suppliers to deliver products when needed
JIT does not entail keeping a significant amount of inventory on hand. So, suppliers must be ready to provide products as soon as there is need.
Example Question #2 : Financial Management Process
Which of the following characteristics is a primary benefit of a just-in-time inventory system for raw materials?
Eliminated non-value-added operations
Increases total number of suppliers to ensure competitive bidding
Decreases deliveries required to maintain production
Increases standard delivery quantity
Eliminated non-value-added operations
JIT is designed to minimize the amount of time inventory is kept on hand before it is utilized. Thus, it eliminates non value added operations.
Example Question #10 : Financial Management Process
What amount of annual sales must a company achieve to break even if the following information is given: Fixed Costs per month $2,500, Unit Selling Price $100, Variable cost as a percentage of sales 60%
$50,000
$100,000
$30,000
$75,000
$75,000
$2,500 * 12 months = $30,000. 100% - 60% = 40% CM of sales. $30,000/40% = $75,000
Example Question #2 : Supply Chain/Reorder Point
Which one of the following represents methods for converting A/R to cash?
Trade discounts, cash discounts, and electronic funds transfers
Factoring, pledging, and electronic funds transfers
Cash discounts, collection agencies, and electronic funds transfers
Trade discounts, collection agencies, and credit approval
Cash discounts, collection agencies, and electronic funds transfers
These are methods for converting A/R to cash.
Example Question #3 : Supply Chain/Reorder Point
The reorder point for a firm is the point at which the firm should reorder more inventory and it is calculated as:
Safety stock * lead time * orders
Lead time + (Safety stock * orders)
Safety stock * lead time + sales during lead time/sales per week
Safety stock + (Lead time * Sales during lead time)
Safety stock + (Lead time * Sales during lead time)
The formula for reorder point needs to consider the amount of safety stock required by the firm, as well as the time it would take to acquire more inventory.
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