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 producing a product only after it receives an actual order, the firm will minimize its inventory holdings and therefore decrease its cash cycle. This is because it will no longer need to tie up cash in holding inventory before making a sale. The other choices are unlikely to be affected by the change in policy.

ABC Manufacturing Historically Produced Products That Were Held in Inventory