Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Inventory Errors

Financial Accounting

5. Inventory

Inventory Errors

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Multiple Choice

Extra units that are held in inventory to reduce stockouts are called:

Consignment inventory

Obsolete inventory

Safety stock

Raw materials

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Verified step by step guidance

Understand the concept of safety stock: Safety stock refers to extra inventory kept on hand to prevent stockouts caused by unexpected demand or supply chain disruptions.

Differentiate between the given options: Consignment inventory refers to goods held by a retailer but owned by the supplier, obsolete inventory refers to items no longer sellable, and raw materials are unprocessed goods used in production.

Recognize that safety stock is specifically intended to mitigate the risk of stockouts, which aligns with the problem's description of 'extra units held in inventory to reduce stockouts.'

Eliminate incorrect options based on their definitions: Consignment inventory, obsolete inventory, and raw materials do not serve the purpose of reducing stockouts.

Conclude that the correct term for extra units held in inventory to reduce stockouts is 'Safety stock.'