Question

Explain the tradeoffs involved in setting an ideal level of inventory for a

particular product. What are the costs if too much is maintained? What are
the costs if too little is maintained?

Answer 1

Too much inventory ties up capital which could otherwise be used for purposes such as research and development, marketing and sales, stockholder dividends, salary increases, etc.

The more inventory a company holds, the more space is needed, and space costs money

Too little? Less money and less product being sold.