[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for BEC.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[FAR_WARS]

Here is how to do a safety stock problem I was having trouble with:

100 units of safety stock * $5/unit= $500 *15% probability= $75 *10 orders/yr = $750 Stockout Cost

Inventory: $50/unit * 2% carrying cost = 10 stockout units* 100 units of safety stock = $1000 carrying cost

Annual Cost of Safety Stock: $1750

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Anonymous]

monikernc you are right, somehow I let it out Fixed it!

Do you happen to know the safety stock formula? I am trying to group all my formulas per segments that makes sense to me os it is a bit easier to memorize and suddenly when I was dealing with inventory management I could not find it.

[Anonymous]

Farwars do you have the mcq? I think I know what is happening on the formula but I am finding kind of hard to get the whole picture.

Are there are various ways to calculate safety stock? I remember a fomula using daily demand and lead time.

[FAR_WARS]

Handyman Inc. operates a chain of hardware stores across New England. The controller wants to determine the
optimum safety stock levels for an air purifier unit. The inventory manager has compiled the following data.

• The annual carrying cost of inventory approximates 20 percent of the investment in inventory.
• The inventory investment per unit averages $50.
• The stockout cost is estimated to be $5 per unit.
• The company orders inventory on the average of ten times per year.
• Total cost = carrying cost + expected stockout cost.
• The probabilities of a stockout per order cycle with varying levels of safety stock are as follows.

Units:

Safety Stock——Stockout————-Probability
200———————–0————————-0%
100———————100———————–15%
0————————100————————15%
0————————200————————12%

The total cost of safety stock on an annual basis with a safety stock level of 100 units is:
a. $1,750
b. $1,950
c. $2,000
d. $650

FAR- 80
BEC- 75
AUD- 78
REG- ?

[monikernc]

Cortes, safety stock
(Max days lead time – Avg days lead time) * daily usage

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Anonymous]

Thanks. So just to be sure, in that mcq the amount of SS and stockout (EDIT: units) are the same but we have to allways multiply:

stockout cost per unit * level of SS? Not stockout cost per unit * level of stockout?

[Anonymous]

Thanks monikernc!!

[monikernc]

Not following your question cortes. Rephrase, please. That mcq was asking what the cost of stock out would be when, the safetty stock level = 100, the probability of stockout =15%, and inventory is ordered 10 times a year, Stock out costs consist of two components: inventory cost + carrying cost for the 100 unitsof safety stock. Does that help?

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Anonymous]

I think I got it. So if the mcq asked for the stockout cost with levels of SS of 0 units (3rd option) then total stockout cost would be only 750?

[payaza2000]

Factoring, Safety Stock I suck at.

Here's a good question we can lose our minds over: Note that capacity is not fully utilized. Question #: 186 in NINJA.

Division A currently makes a widget. The following is information related to the production of the widgets:

Production capacity 100,000 units per year
Current sales level 80,000 units per year
Selling price to outside customers $20 per unit
Variable costs per unit $12 per unit
Total fixed costs $600,000
Division B wishes to purchase 15,000 widgets from Division A for $16 per unit. Division A has the capacity to handle all of Division B's needs without changing either fixed or variable costs nor losing any sales to outside customers. Division B currently purchases widgets from the outside for $18 per unit. If Division A accepted the $16 internal price and Division B purchases the widgets from Division A, the company as a whole will be:

A.
$30,000 better off each period.

Correct B.
$90,000 better off each period.

C.
$30,000 worse off each period.

D.
$60,000 worse off each period.

FAR 5/6/2015- 84
REG 8/3/2015 - 87
AUD 10/25/2015- 69 1/20/2016 -75
BEC 2/26/2016- 80

Thank you God

[Anonymous]

EDIT ok now I see what is going on. We have to take into account the 2$ per unit that they are saving and the CM per unit that they are creating

2$ savings per unit
+ 4$ CM
6 * 15,000 = 90,000 aditional income to offset the fixed costs.

I wonder how it will be calculated when fixed costs change and there are potential customers losts…

[monikernc]

Cortes, no, I don't think so. The 3rd line has no safety stock and I think that means the cost of safety stock would be 0. I am not sure. Thoughts?

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[monikernc]

Payaza and farwars. 16-12=4*15000=60,000 for div A. DIV b saves 18-16=2*15000=30,000 total 90,000 better off

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Anonymous]

monikernc getting back to the stockout cost I just noticed now that the mcq asked for the safety stock specificly (sorry I am trying to do like 5 things at a time for this freaking test) I have to slow down! In that case then the answer is 0$ bc there is no inventory. But if the mcq asked for the stockout cost then it should have been some amount.

I have a Wiley book that I almost no use but found this there: Safety stocks serve to guard against stockout costs. They decrease stockout cost (lost sales, customer ill will etc) but increase carrying cost (property taxes, storage, interest, insurance, spoilage)

[Anonymous]

Good mcq for absortion vs variable costing

At the start of its fiscal year, a company anticipated producing 300,000 units throughout the year. The annual budgeted manufacturing overhead was $150,000 for variable costs and $600,000 for fixed costs. In April, when there was a beginning inventory for finished goods of 5,000 units, the company showed an income of $40,000 using absorption costing. That same month, ending inventory for finished goods was 7,000 units. What amount would the company recognize as income for April using variable costing?

A. $35,000

B. $36,000

C. $44,000

D. $45,000

.

[Author]

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