Reasons Benefits Of Inventory Assignment Help | Reasons Benefits Of Inventory Homework Help


 The inventory has cost as well as benefits associated with it. While determining the optimum level of inventories, the financial manager must consider the necessity of  holding inventory & cost thereof. The optimum level of inventory is a subjective matter and depends upon the features of  a firm. The following are some of the benefits or reasons for holding inventories.

1) Trading firm:

If the firm has some stock of goods then the sale activity can be undertaken even if the procurement as stopped due to one reason or the other .  Otherwise ,if stock is not there , there is likelihood that the ale will stop as soon as there is an interruption in procurement. Moreover , it is not always possible to procure goods whenever there is a sales opportunity , as there is always a time gap required  between the purchase & sale of the goods. Thus , a trading concern should have some stock of finished goods in order to undertake sales activities independent of each other. A firm may have several incentives being offered in terms of quantity discount or lower price etc. the inventory so purchased, at a discount/lower cost, will result in lowering the total cost resulting in higher to the firm. So , in case of trading concern, the inventory helps in de-linking the sales activity from purchase activity  and also to capitalize a profit of opportunity.

2) Manufacturing firm:

A manufacturing firm should have inventory of not only the finished goods, but also, of raw material  and work-in-progress for obvious reason as follows:

i) Uninterrupted production schedule:

Every firm must have sufficient stock of raw material in order to have regular & uninterrupted production schedule. If there is stock-out of raw material at any stage of production process , then the whole production process may come to a halt. This may result in customer satisfaction as the goods can not be delivered in time. The firm may have to incur heavy cost to restart the production process.
Further , sufficient work-in-progress would let the production process to run smoothly. The work-in-progress helps in fulfillment of sales orders even if the supply of raw material has stopped. 

ii) Independent sales activity:

The production schedule is generally a time consuming process & in most cases goods cannot be produced just after receiving orders. Every manufacturing concern  therefore, maintains a minimum level of finished goods in order to deliver the goods as soon as the order is received.

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