Final answer:
The statement about inventory peaking with level production when sales exceed production is false(Option B). Level production aims to match the average demand over a period, not monthly sales.
Step-by-step explanation:
The statement, "When using level production, inventory will peak in the month where unit sales trend above the planned production level," is false. In level production, a company produces a constant amount each month, smoothing out the peaks and valleys of production to match the average demand over the year, not the monthly fluctuations in sales.
When sales exceed production in any given month, the company will draw from its inventory to meet demand, which means inventory levels would decrease, not peak. Conversely, if sales are below production, inventory would build up. The peak inventory would actually occur during periods when sales are less or equal to production levels but production continues at the steady rate set by the average demand.
Understanding the concept of level production is essential, especially when considering aggregate demand and the equilibrium point in the economy. In a situation where real output is lower than equilibrium, aggregate demand will exceed output. Firms will eventually respond by increasing production to meet this demand, aiming for the point where the aggregate expenditure is equal to the level of output. This balance is necessary to avoid excess inventory or stockouts.