Given below are two statements:
Assertion (A): Higher the level of inventory a firm keeps, higher will be its cost of carrying the inventory.
Reason (R): Inventory decisions hold key to success for many manufacturers, especially those where the per unit cost is high.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): Higher the level of inventory a firm keeps, higher will be its cost of carrying the inventory. — True. A large stock ties up a lot of capital, so the cost of carrying the inventory rises.
Reason (R): Inventory decisions hold key to success for many manufacturers, especially those where the per unit cost is high. — True. When each unit is costly, a wrong stock level can hurt the firm badly. So inventory decisions decide the success of such manufacturers.
Why R does not explain A?
R tells how important inventory decisions are. It does not say why the cost rises as the stock rises.
The correct reason for A is that more inventory means more capital tied up in the stock, and so the cost of carrying it goes up.
NCERT (2026-27 Edition): “4. Inventory Control: Linked to warehousing decisions are the inventory decisions which hold key to success for many manufacturers, especially those where the per unit cost is high. A very important decision in respect of inventory is deciding about the level of inventory. Higher the level of inventory, higher will be the level of service to customers but the cost of carrying the inventory will also be high because lot of capital would be tied up in the stock. Thus, a balance is to be maintained in respect of the cost and customer satisfaction.” |