Question

Why do manufacturers save money if they produce just enough to meet demand?

Costs to warehouse unsold inventory goes down.
Costs of raw materials increase when purchased in bulk.
Production workers can be unskilled.
Delivery schedules are reduced.

Answer 1

A. Costs to warehouse unsold inventory goes down.

Step-by-step explanation:

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Answer 2

Costs to warehouse unsold inventory goes down.

Step-by-step explanation:

By producing sufficient quantities to meet demand, a business avoids costs associated with storing unsold inventory. In this case, unsold inventory refers to finished products waiting to be sold. If the business does not have a lot of unsold inventory, it will not incur some unnecessary cost, including

1. Warehousing associated costs such as lighting, refrigeration, cleaning, labor, and sometimes rent to the storage facility.
2. Unsold inventory ties a lot of capital. The costs of production are held up in unsold inventory. The business has to consider the opportunity cost of holding the unsold inventory.
3. Most businesses operate on borrowed capital. Unsold inventory means the interest on loans will increase.
4. There is the risk of damages and pilferage of unsold inventory held at the warehouses.