A firm's inventories are worth Rs 300 at the beginning of a year and Rs 180 at the end of the year. Its sales during the year are Rs 1,050. What is the value of its production during the year?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 930
Given:
Opening inventories = Rs 300
Closing inventories = Rs 180
Sales = Rs 1,050
The relation is change in inventories = production − sales.
Change in inventories = 180 − 300 = −Rs 120
Production = Sales + Change in inventories
Production = 1,050 + (−120) = Rs 930
Inventories fell, so the firm sold Rs 120 out of its old stock. It produced less than it sold.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … Inventory is a stock variable. It may have a value at the beginning of the year; it may have a higher value at the end of the year. In such a case inventories have increased (or accumulated). If the value of inventories is less at the end of the year compared to the beginning of the year, inventories have decreased (decumulated). We can therefore infer that the change of inventories of a firm during a year ≡ production of the firm during the year – sale of the firm during the year. …” |