Question

Which of the following is not an advantageous reason to reduce inventories?

a. Inventories provide a competitive advantage
b. Inventories can invite overproduction
c. Inventories are expensive to maintain
d. Inventories may conceal problems
e. All of these are good reasons to reduce inventories

Answer 1

The reasons for reducing inventories include concealing problems, providing a competitive advantage, avoiding overproduction, and cost savings.

Step-by-step explanation:

An advantageous reason to reduce inventories is that inventories may conceal problems. When businesses have excess inventory, it can mask underlying issues such as inefficient production processes, poor quality control, or slow sales. By reducing inventories, businesses are forced to address these problems and improve their operations.

On the other hand, the remaining options a, b, c, and d are all advantageous reasons to reduce inventories:

1. Inventories provide a competitive advantage: Businesses that can quickly respond to changes in demand by having lower inventory levels are more agile and can gain a competitive edge.
2. Inventories can invite overproduction: If businesses have large inventories, they may be tempted to produce more than what is needed, leading to waste and excess costs.
3. Inventories are expensive to maintain: Keeping inventories incurs costs such as storage, insurance, and potential obsolescence. Reducing inventories can help save on these expenses.