Practicing Success
A firm starts with an inventory of 100 shirts at the beginning of the tear. During the coming year it expects to sell 1200 shirts. Hence it produces 1300 shirts hoping to keep an inventory of 200 shirts 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 1000 shirts only. The firm is left with 400 shirts. This is an example of : |
Planned accumulation of inventories Unplanned accumulation of inventories Planned deaccumulation of inventories Unplanned deaccumulation of inventories |
Unplanned accumulation of inventories |
The correct answer is option (2) : Unplanned accumulation of inventories Explanation : The discrepancy between the planned and actual inventory levels indicates that the firm did not anticipate the lower sales and thus accumulated more inventory than planned. This situation is described as an unplanned accumulation of inventories. In the present case, the firm initially planned to sell 1200 shirts but ended up selling only 1000 shirts. As a result, it has an excess inventory of 400 shirts, which is an unplanned accumulation of inventories. |