Comprehension:
On the basis of given passage answer the following questions:
Inventory and Investment.
Inventories are treated as capital. Addition to stock of capital of a firm is known as investment. There can be three major categories of investment. Change in inventories may be planned or unplanned. In case, of an unexpected fall in sales, firm will have unsold stock of goods which it had not anticipated. Hence, there will be unplanned accumulation of inventories. In opposite case, where there is unexpected rise in sales, there will be unplanned decumulation of inventories.
What can be examples of planned accumulation or decumulation of inventories? Suppose firm wants to raise inventories from 100 shirts to 200 shirts during year. Expecting sales of 1100 shirts (1000 shirts during year as before), firm produces 1100 shirts (1000 + 100 =1100 shirts). If sales, are actually 1100 shirts (1000 shirts), then firm indeed ends up with a rise in inventories. The new stock of inventories is 200 shirts, which was indeed planned by firm. This rise is an example of planned accumulation of inventories. On other hand, if firm had wanted to reduce inventories from 100 to 25, then it would produce 1100 shirts (1000-75 =925 shirts. This is because it plans to sell 75 shirts out of inventory of 100 shirts it started with ( so that inventory at ends of year becomes 100 -75 =25 shirts, which firm wants.). If sales, indeed turn out to be 1100 shirts (1000 as expected by firm, firm will be left with planned, reduced inventory of 25 shirts.
In case of unexpected fall in sales, there will be:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Unplanned accumulation of inventories.
A firm decides how much to produce by estimating how much it will sell, and it may plan to add to its stock of unsold goods (its inventories) or to draw it down. If sales then fall short of what was expected, goods meant for sale stay in its godown and the stock rises beyond the plan. This rise, which the firm did not plan, is an unplanned accumulation of inventories.
For example, a firm that starts the year with 100 shirts, produces 1,000 expecting to sell 1,000, and sells only 600 ends the year with 500 shirts instead of the 100 it planned: an unplanned accumulation of 400 shirts.
Why the other options are incorrect
Option (1) Unplanned decumulation of inventories. — Incorrect. This is the opposite case: an unexpected rise in sales draws the stock down below the plan.
Option (3) Planned depletion of inventories. — Incorrect. It is wrong on both counts: the stock has risen, not fallen, and the change was not planned.
Option (4) Planned accumulation of inventories. — Incorrect. A planned addition is one the firm decided on in advance; here the extra stock came from a fall in sales it did not expect.
Note 1: It seems that there is a mistake in the original NTA passage: two figures of the book’s shirt example are printed wrongly.
Planned rise in inventories: the passage prints “Expecting sales of 1100 shirts (1000 shirts during year as before)”; the original example reads expected sales of 1,000 shirts, so the firm produces 1000 + 100 = 1,100 shirts.
Planned fall in inventories: the passage prints “it would produce 1100 shirts (1000-75 =925 shirts”; the original example reads that the firm would produce 1000 – 75 = 925 shirts.
The definitions of planned and unplanned changes in inventories are printed correctly, and the question is answered from them.
Note 2: A same/similar question was asked in CUET (UG) in the papers below.
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 15-05 S1* 20-05 S1 06-06 S1* | – | – | 29-05 S3* | – |
* A similar question.
NCERT (2025-26): “2.2.1 The Product or Value Added Method … Change in inventories may be planned or unplanned. In case of an unexpected fall in sales, the firm will have unsold stock of goods which it had not anticipated. Hence there will be unplanned accumulation of inventories. In the opposite case where there is unexpected rise in the sales there will be unplanned decumulation of inventories. This can be illustrated with the help of the following example. Suppose a firm produces shirts. It starts the year with an inventory of 100 shirts. During the coming year it expects to sell 1,000 shirts. Hence, it produces 1,000 shirts, expecting to keep an inventory of 100 at the end of the year. However, during the year, the sales of shirts turn out to be unexpectedly low. The firm is able to sell only 600 shirts. This means that the firm is left with 400 unsold shirts. The firm ends the year with 400 + 100 = 500 shirts. The unexpected rise of inventories by 400 will be an example of unplanned accumulation of inventories.…” |