COST ACCOUNTING
INFORMATION FOR DECISION MAKING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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usually causes a company to loose sales
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increases employment
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decreases cost
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increases the risk that the products will become outdated before they are sold
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Detailed explanation-1: -5 Negative Effects of Keeping Too Much Inventory Limits cash flow. Reduces profits. Increases storage costs. Heightens risk of product obsolescence.
Detailed explanation-2: -Excess inventory represents a loss of revenue. Excess merchandise loses value the longer it is held in stock, as the demand for that product diminishes, and it takes “shelf space” away from a newer product with perhaps a higher profit margin.
Detailed explanation-3: -Inventory is purchased to be resold at a profit, and having too much inventory on hand can result in working capital being tied up as goods. Inventory loses value over time as degradation occurs and demand diminishes, leading to an eventual loss of revenue.
Detailed explanation-4: -Excess inventory is when stock levels for an item exceed their forecasted demand in an uncontrolled manner. Carrying excess inventory is inefficient and has operational costs and financial implications. These include tying up much needed capital, increased carrying costs and a risk of stock obsolescence.