US CMA Part 2 · Chapter 4 · Question 5 of 15
Ingram Parts uses 120 units of a component per day. Supplier lead time is 6 days and the company holds a safety stock of 300 units. At what inventory level should it reorder?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) 1,020 units
Explanation
Reorder point = (daily usage x lead time) + safety stock = (120 x 6) + 300 = 720 + 300 = 1,020 units. Omitting the safety stock (720 units) would leave no buffer against delays or higher-than-expected usage.
More Corporate finance: working capital, raising capital, mergers and international finance MCQs
- Q7Jarvis Furnishings is considering relaxing its credit standards. Annual sales would increase by $400,000, its contribution margin ratio is…
- Q8In a firm commitment underwriting of an initial public offering, which party bears the risk that the shares cannot be sold at the offering…
- Q9Compared with a public offering, which is a typical advantage of a private placement of debt with a small number of institutional investors?
- Q10According to the semi-strong form of the efficient markets hypothesis, which of the following should NOT enable an investor to earn…
- Q11Kendrick Corp. (stand-alone value $400 million) plans to acquire Lowell Inc. (stand-alone value $120 million). The combined company is…