A toy manufacturer accumulates inventories because of the uncertainty of the demand for their product at Christmas and the desire not to lose any potential sales. This is an example of the ______ motive for holding inventories.
A) production smoothing
B) inventories as a factor of production
C) stock-out avoidance
D) work in process

Question

Quizplus · Accepted Answer

The holding of inventories to avoid stock-outs is a common motive for businesses. In this scenario, the manufacturer is holding inventories in anticipation of demand during the Christmas season, and not to smooth out production or maintain a continuous flow of work in process.

A Toy Manufacturer Accumulates Inventories Because of the Uncertainty of the Demand