COST ACCOUNTING
INVENTORY AND PRODUCTION MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Select the costs and risks of UNDERstocking:
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Reputation may suffer if order are not met
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Customer may be lost to competition
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Advertisement costs will increase
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Money will be tied up in stock
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Explanation:
Detailed explanation-1: -Understocking Risks When customers have to be sent back as due to a lack of products in stock, it can make them unhappy. They will buy from your competitor, and may not return; which means you lose a customer for good. They may lose their trust in your business and even do negative publicity.
Detailed explanation-2: -To calculate the cost of understocking, multiply the number of sales missed due to understocking by the average cost per sale.
Detailed explanation-3: -Overstocks tie up cash and take up storage space that could be used for new products and opportunities. Conversely, understocks lead to lost sales. Accurate estimation can help prevent both overstocks and understocks.
There is 1 question to complete.