Question

Excess inventory . . .?

a. Leads to costly inventory writedowns.

b. Incurs unnecessary physical warehousing costs.

c. Causes an increase in stockout costs.

d. Ties up capital in inventory that is not needed.

e. All of the above

f. Only A, B, and D

Answer 1

The correct answer is letter "F": Only A, B, and D.

Step-by-step explanation:

As a result of a mistaken projection in consumer demand, entities have excess inventory. It is the number of goods that have not been sold yet stored in the inventory. If the Fair Market Value (FMV) of the good drops the company will have to issue write-downs for the losses. The longer the goods remain in the inventory, the higher the write-down.

Besides, keeping goods stored much time than expected increases the warehousing costs since most recent goods being produced will need new shelves where to be stored. Also, inventory capital will remain withheld unnecessarily.