Question

Which of the following would NOT generally be a motive for a firm to hold inventories? to hedge against inflation to decouple various parts of the production process to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand to minimize reordering costs

Answer 1

The answer is to minimize the reodering cost

Step-by-step explanation:

We have three motives for holding inventory

1. Transaction motives of holding inventory This is to enable day to day transaction running of inventories.

2. Precautionary motives of holding inventory: Holding inventory to guard against unforeseen circumstances or to meet emergencies. For example, unexpected increase in demand.

3. Speculative motives of holding inventory. This is the holding of inventory in order to take advantage of any potential Investments. For example, to hedge against risk, take advantage of discounts.

All the options EXCEPT 'to minimize reodering cost' option are the reasons holding inventories.