Chapter 10.3, Problem 4R

To determine

To state: The way poor inventory affects the control on profits.

Answer to Problem 4R

Inventory control is an important aspect for a business. Maintaining large inventory can lead to higher costs for the company.

Explanation of Solution

Inventory is not cheap. It includes the buying costs, storage costs and carrying costs. All these costs when added up increases the cost of the inventory for the company. If we maintain large inventory, it can increase the costs and also leads to a lot of waste of inventory. Quality check should also be properly done else damaged or broken items could further increase the costs for the company thereby reducing the profits.

Economics Concept Introduction

Introduction: Inventory cost includes buying of raw material, carrying costs and storage costs. All these together constitutes the total inventory cost for the company.