Question

A. Flow n Breeze Ltd decided to offer a narrower range of clothing to its customers in the future. How might this decision affect the company’s level of clothing inventory? Clearly explain your answer. (4 points)

B. Lately, Decker Ltd found that there was a deterioration in the quality and reliability of bought-in components. These components are a critical part of the machinery which the business assembles for its customers. How might the poor quality of the components affect the company’s level of component inventory? Clearly explain your answer. (6 points)

Answer 1

Hello Buddy,

Coming to your question,

1. If the management of Flow n Breeze Ltd decide to offer a narrower range of clothing to its customers in the future, this decision would render its exisiting inventory of clothing as useless. (other than that range of clothing it wishes to offer). It would have to right off this inventory and present it at its saleable price after accounting for selling expenses. This would also lead to an inflation of operating expenses in the near future.

2. The poor quality of the components affect the company’s level of component inventory because these components are critical to the operations of the company and a result company will have to rethink its decision of either going for bought in components or getting them tailor made specifically as per their requirements or source a seller providing the components with their required quality norms. If the company chooses to discontinue such components, it will have no option but to write off such component from its inventory as it is no use to the company.

I hope the above solution is what you were looking for. For any further queries or doubts in the solution, please feel free to drop a comment. Please do leave a positive feedback, Thank you :)