Multiple Choice
Which one of the following parties can sell shares of ABC stock in the primary market?
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1. Introduction to Accounting
Types of Accounting
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Safety stock exists for which of the following reasons?
A
To eliminate the need for periodic inventory counts
B
To reduce the need for inventory management
C
To increase the carrying cost of inventory
D
To protect against uncertainties in demand and supply
Verified step by step guidance1
Understand the concept of safety stock: Safety stock is extra inventory maintained to mitigate the risk of stockouts caused by uncertainties in demand and supply.
Analyze the options provided: Evaluate each option to determine whether it aligns with the purpose of safety stock.
Option 1: 'To eliminate the need for periodic inventory counts' - This is incorrect because safety stock does not eliminate the need for inventory counts; it serves a different purpose.
Option 2: 'To reduce the need for inventory management' - This is incorrect because safety stock does not reduce the need for inventory management; it requires careful monitoring and planning.
Option 3: 'To protect against uncertainties in demand and supply' - This is correct because safety stock is specifically maintained to address fluctuations in demand and supply, ensuring smooth operations.
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