Which of the Following Is a Disadvantage of Excessive Inventory

question 29

Multiple Choice

Which of the following is a disadvantage of excessive inventory?

• A) It hides production and other problems.
• B) It leads to higher inventory ordering cost.
• C) It leads to lower average inventory.
• D) It eliminates cycle stock.
• E) It reduces the need to conduct cycle count.

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Definitions:

Break-Even

The point at which total costs equal total revenues, resulting in no net loss or gain for a business.

Variable Cost

Costs that vary directly with the level of production or volume of output.

Fixed Costs

Costs that do not change with the level of production or sales, such as rent, salaries, and insurance premiums, providing a basis for operational planning.

Operating Profit

Earnings before interest and taxes (EBIT), representing the profit a company makes from its operations after subtracting operating expenses from revenue.