Question

From your inspection of the inventory department you found there was surplus of stock in many items. Explain three implications to the company of having a surplus of stock.

Answer 1

Step-by-step explanation:

Increased storage costs: A surplus of stock implies that the company has more inventory than it needs, which means that it must store this excess inventory. This can result in higher storage costs, such as rent for warehouse space, utilities, and insurance.

Opportunity cost: The money tied up in surplus stock cannot be invested in other business areas, such as marketing or research and development. This results in an opportunity cost, as the funds are not used to grow the business in other ways.

Reduced cash flow: A surplus of stock may also lead to a reduction in cash flow, as the money spent on purchasing the excess inventory cannot be recouped until the items are sold. This can strain the company's finances and limit its ability to invest in other areas.