Which of the Following Statements Is FALSE

question 45

Multiple Choice

Which of the following statements is FALSE?

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

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Definitions:

Unrealized Profits

Profits that have been generated on paper through investments but have not actually been realized through a sale or exchange.

Intercompany Transactions

Transactions between entities within the same group that are eliminated in the process of preparing consolidated financial statements to avoid double counting.

Wholly Owned

A company whose entire share capital is 100% owned by another company, making it a complete subsidiary.

Unrealized Profit

Profits that have been accounted for but not yet realized through a transaction, such as stocks that have increased in value but have not been sold.