Final answer:
The risk associated with slow-moving inventory is obsolescence risk, which refers to the possibility of inventory becoming obsolete or outdated. The correct answer is B. Obsolescence risk.
Step-by-step explanation:
The risk associated with slow-moving inventory is called obsolescence risk.
Obsolescence risk refers to the possibility that the inventory may become obsolete or outdated, resulting in a loss for the company. Slow-moving inventory poses a higher risk of becoming obsolete compared to fast-moving inventory.
For example, if a company sells electronic devices and has slow-moving inventory of older models, there is a higher chance that those models will become outdated before they can be sold, leading to potential financial losses for the company.
This type of risk arises when inventory may become out-of-date or less desirable before it is sold, leading to potential write-downs or write-offs. Obsolescence can occur due to technological changes, shifts in consumer preferences, or product degradation, which can adversely affect the valuation of inventory on the balance sheet and require careful scrutiny during an audit.