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Exam CSCP topic 1 question 19 discussion

Actual exam question from APICS's CSCP
Question #: 19
Topic #: 1
[All CSCP Questions]

A company's annual cost of goods sold is $350 million, and inventory carrying cost is 18%. The company averages four inventory turns. The cost savings resulting from increasing inventory turns from four to six would be:

  • A. $29,000,000.
  • B. $15,750,000.
  • C. $10,500,000.
  • D. $ 5,250,000.
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Suggested Answer: D 🗳️
by Tiva at March 24, 2019, 11:01 p.m.

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Tiva
Highly Voted 5 years, 8 months ago
350/4 = 87.5 350/6= 58.33 (87.50*18%)-(58.33*18%)=$5.25 mil
upvoted 15 times
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Jayleo058
Most Recent 9 months ago
This question confuses me because theoretically if you increased inventory turns carrying costs would increase by a fixed amount not a percentage. There would be more handling and administrative costs... 18% per dollar wouldn't make a difference.
upvoted 1 times
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Apix1
1 year, 8 months ago
D (($350M x 0.18) / 4) - (($350M x0.18) / 6)
upvoted 2 times
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JGP1
1 year, 9 months ago
Correction = $350,000,000 x 18% = $63,000,000 = Inventory Carrying Cost
upvoted 1 times
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Sam_San
2 years, 2 months ago
 $350 000 000*82% = $63 000 000  $63 000 000/4 = $15 750 000  $63 000 000/6 = $10 500 000  Saving  $15 750 000 – 10 500 000 = $5 250 000
upvoted 1 times
...

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