13 Identify and explain two advantages to QAC of having a high level of inventory. [6]

Ch 18 Production of goods and services
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13 Identify and explain two advantages to QAC of having a high level of inventory. [6]

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QAC uses batch production to make 70 different cleaning products including soap and polish. To meet increased demand for two of its products, X and Y, QAC could invest $10m in flow production using new technology. The Finance Director is worried about QAC’s cash flow position as shown in the Table. He thinks it is important to have a high level of inventory but he also wants to improve the cash flow position.

13 Identify and explain two advantages to QAC of having a high level of inventory. [6]

Possible KN Points:
• Ability to make orders straightaway
• Benefit from economies of scale / bulk buy
• Production does not stop
• Avoid supply problems
• Able to increase scale of production
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