Question

Too much inventory on hand:a.increases the cost to safeguard the assetsb.ties up funds that could be used to improve operationsc.increases the losses due to price declinesd.All of these choices are correct.

Answer 1

The correct answer is letter "D": All of these choices are correct.

Step-by-step explanation:

Inventories represent all the finished goods firms have in their warehouses. It is important to have a reasonable amount of products in stock in case of unexpected increases in demand but having too much inventory could be detrimental for a corporation.

In the first place, the more inventory there is, the more costs are incurred by the firm keeping those products in optimal conditions so they can still be consumed. Then, it maintains stuck an amount of money that the company can be used to improve its processes. Finally, it carries the risk of diminishing its value in front of price decreases in the market bringing losses for the organization.

Answer 2

Answer: d.All of these choices are correct.

Step-by-step explanation:

a) Storing the inventory as well as other related expenses that go with the storage will see their profitability fall. Inventory that is not being sold for profit is being stored and expenses are still being paid on them. That is a definite increase in cost.

b) More money invested in inventory translates to less cash on hand for other opportunities. Cash that could be used to invest in PPE or other ventures that could improve profitability. In extreme cases even basic expenses like rent would be hard to be paid.

c) Consumer tastes change quite quickly and if a company intends to keep up with trends, they can't be caught having too much stock. When one has too much stock and the trend shifts, demand drops and so does prices. If there was a large inventory of a good that was just affected, the business will experience losses on sale of the goods.

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