Mini Case: 22 - 19 h. What reasons might SKI have for maintaining a relatively high amount of cash? Answer: If sales turn out to be considerably less than expected, the company could face a cash shortfall. A company may choose to hold large amounts of cash if it does not have much faith in its sales forecast or if it is very conservative. Unfortunately, given its current pressure to perform, SKI’s management does not have the luxury to be extremely conservative. i. What are the three categories of inventory costs? If the company takes steps to reduce its inventory, what effect would this have on the various costs of holding inventory? Answer: The three categories of inventory costs are carrying costs, ordering costs, and the costs of running short. Carrying costs include the cost of capital tied up, storage and handling costs, insurance, property taxes, and depreciation and obsolescence. Ordering, shipping, and receiving costs include the cost of placing orders (including
This is the end of the preview. Sign up
access the rest of the document.