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

Which of the following is a true statement about safety stock in inventory management?

Safety stock refers to obsolete inventory that is no longer sellable.

Safety stock is the amount of inventory ordered each time a purchase is made.

Safety stock is calculated by subtracting ending inventory from beginning inventory.

Safety stock is extra inventory kept to reduce the risk of stockouts due to demand or supply variability.

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Verified step by step guidance

Understand the concept of safety stock: Safety stock is extra inventory maintained to mitigate the risk of stockouts caused by unpredictable demand or supply chain disruptions. It acts as a buffer to ensure smooth operations.

Eliminate incorrect options: Review each statement provided in the problem and identify why it does not align with the definition of safety stock. For example, safety stock is not obsolete inventory, nor is it the amount ordered during a purchase, and it is not calculated by subtracting ending inventory from beginning inventory.

Focus on the correct statement: The correct definition of safety stock is that it is extra inventory kept to reduce the risk of stockouts due to demand or supply variability. This aligns with the purpose of safety stock in inventory management.

Relate safety stock to inventory management practices: Safety stock is a critical component in ensuring customer satisfaction and operational efficiency. It helps businesses avoid lost sales and production delays caused by insufficient inventory.

Summarize the importance of safety stock: Highlight that safety stock is a proactive measure in inventory management, designed to address uncertainties in demand and supply, ensuring the business can meet customer needs consistently.