When Considering Safety Stock and Its Effect on EOQ, Which

question 7

Multiple Choice

When considering safety stock and its effect on EOQ, which of the following statements is false?

• A) Safety stock is equal to the potential excess usage of an input.
• B) The reorder point is affected by the existence of safety stock.
• C) Safety stock decreases inventory holding costs.
• D) Safety stock decreases the potential costs caused by inventory shortages.
• E) Fluctuations in monthly usage of a material indicate the desirability of a safety stock.

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Definitions:

Oil Futures

Oil futures are contracts to buy or sell oil at a predetermined price on a specified future date, used for hedging or speculation on oil price movements.

Risk-Free Rate

The rate of return on an investment with no risk of financial loss, typically associated with government bonds.

Oil Futures

Contracts to buy or sell oil at a predetermined price on a specified future date, used as a financial instrument for hedging or speculative purposes.

Risk-Free Rate

This rate is considered the minimum return investors expect for any investment, since they would not take on additional risk without the prospect of higher returns, often pegged to government-issued securities.