ABC Manufacturing historically produced products that were held in inventory until they could be sold to a customer.The ﬁrm is now changing its policy and only producing a product when it
Receives an actual order from a customer.All else equal, this change will:

Question

Quizplus · Accepted Answer

By only producing products when there is an order, the firm can reduce its inventory levels and use cash more efficiently. This change will decrease the cash cycle, which measures the time it takes to convert inventory into cash. The operating cycle may also decrease because the firm is not holding onto inventory as long. The trade receivables period and trade payables period may not be directly affected by this change. The inventory turnover rate may increase due to the decrease in inventory levels.

ABC Manufacturing Historically Produced Products That Were Held in Inventory