Page 152 - FM Integrated WorkBook STUDENT 2018-19
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Chapter 8
1.2 Problems
Keeping inventory levels high is expensive owing to:
The foregone interest that is lost (or borrowing interest that is paid) from tying
up capital in inventory.
Holding costs:
– storage
– stores administration
– risk of theft/damage/obsolescence.
If inventory levels are kept too low, the business faces alternative problems:
High re-order/set up costs.
Stock outs:
– lost contribution
– production stoppages
– emergency orders.
Lost quantity discounts.
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