Explain the costs and benefits to a business of a decision to hold low levels of inventory. (5)
解析
Answers could include:
Costs such as:
Insufficient stock to meet demands – lost sales
Lack of raw materials leads to idle production resources
Unable to respond to exceptional/new orders quickly
If not buying large quantity of inventory, miss out on bulk buying discounts (JIT).
Benefits:
Opportunity cost of capital invested in inventory is reduced
Reduced storage costs
Reduced risk of wastage/obsolescence
Easier to organise and retrieve inventory.
Very much depends on the type of business activity involved and whether demand is normal or exceptional. It is a trade-off between benefits and risk of incurring costs.
知识点:
Inventory management
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Briefly explain two reasons why a business might decide to hold a high level of inventory.
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