What is the difference between planned and unplanned inventory accumulation? Write down the relation between change in inventories and value added of a firm.
Answers
Explanation:
The planned inventory refers to the change in stock or inventory that has happened in a planned manner. In the event of planned inventory accumulation, the firm will plan to increase its inventions. In case of planned inventory accumulation firms and in case of an expected drop in sales, the firm will have unused stock of goods, which has been anticipated.
For example, if a firm has a list of 1000 units and wants to increase its list from 1000 to 2000 units and sales expect 10000 units, then it will produce 11,000 units, if at the end of the year It is found that the actual sale was also 10000 which the firm would increase its inventory from 1000 to 2000. The closing list will be -
Final list or closing list = list + product - sales
= 1000 + 11000 - 10000
= 2000 units
In this case the inventory accumulation is equivalent to the expected accumulation, so it is a planned inventory accumulation.
Unplanned inventory refers to changes in stock or inventions that have happened unexpectedly. In the event of unplanned inventory accumulation due to unexpected decline in sales, the firm will have unremarked goods, which has not been presumed.
For example, if a firm has a list of 1000 units and wants to increase its list from 1000 to 2000 units and sales expect 10000 units, then it will produce 11000 units, if at the end of the year It is found that the actual sale was 9000 units, then the closing list would be -
Final list or closing list = list + product – sales
= 1000 + 11000 - 9000
= 3000 units
This was not expected, so this is an example of unexpected inventory accumulation.
The connection between the added value and the change in inventory is given by the given equation:
Gross value added by a firm = Sales + listing change - Value of intermediate goods
This means that as the inventory increases, the value added by a firm will also increase, so there is a positive relationship between value-added and change in inventory.