The Production-Smoothing Motive for Holding Inventories Suggests That

question 112

Multiple Choice

The production-smoothing motive for holding inventories suggests that:

• A) firms hold inventories in order to produce more output.
• B) when sales are low, firms produce more than they sell and put the extra goods in inventories.
• C) firms hold inventories to avoid losing sales.
• D) when a product is only partly completed, its components are counted as part of the firm's inventory.

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Definitions:

Sales Increase

A rise in the amount of goods or services sold, often measured as a percentage increase over a previous period.

Contribution Format

A method of income statement presentation that stresses the contribution margin, which is sales revenue minus variable costs.

Income Statement

A financial statement that shows a company’s revenues and expenses over a specific period, resulting in net profit or loss.

Net Operating Income

The total profit a company makes from its operations, excluding taxes and interest.