Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Inventory Errors

Financial Accounting

5. Inventory

Inventory Errors

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Multiple Choice

Which of the following is a disadvantage of carrying too much inventory?

Lower risk of inventory obsolescence

Reduced risk of stockouts

Improved cash flow

Increased storage and holding costs

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Verified step by step guidance

Understand the concept of inventory management: Inventory refers to the goods and materials a company holds for the purpose of resale or production. Carrying too much inventory can have financial implications, both positive and negative.

Analyze the disadvantages of carrying excessive inventory: Excess inventory ties up cash that could be used elsewhere in the business, increases the risk of obsolescence, and leads to higher storage and holding costs.

Focus on the specific disadvantage mentioned in the problem: Increased storage and holding costs. These costs include expenses for warehousing, insurance, and maintenance of inventory, which rise as inventory levels increase.

Compare the other options provided: Lower risk of inventory obsolescence, reduced risk of stockouts, and improved cash flow. These are generally considered advantages of maintaining adequate inventory levels, not disadvantages of carrying excessive inventory.

Conclude that the correct answer is 'Increased storage and holding costs,' as it directly aligns with the financial drawbacks of carrying too much inventory.