Which of the Following Statements Is FALSE

question 2

Multiple Choice

Which of the following statements is FALSE?

• A)Firms may hold inventory because factors such as seasonality in demand mean that customer purchases do not perfectly match the most efficient production cycle.
• B)Inventory helps minimize the risk that the firm will not be able to obtain an input it needs for production.
• C)If a firm holds too much inventory,stock-outs,the situation when a firm runs out of product,may occur,leading to lost sales.
• D)Because excessive inventory uses cash,efficient management of inventory increases firm value.

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Definitions:

Interest

The return on a debt investment.

Breakeven Volume

The number of units a company must sell to cover its fixed and variable costs, with no profit and no loss.

Units

Units commonly refer to a measure of quantity or to the basic amounts of inventory, production, or other quantifiable elements in business operations.

Return On Capital Employed (ROCE)

A financial ratio that measures a company's profitability and efficiency in using its capital; calculated as EBIT (Earnings Before Interest and Taxes) divided by capital employed.