Write "𝗧𝗿𝘂𝗲"if t he statement is correct, writte "𝗙𝗮𝗹𝘀𝗲" if the statement is incorrect with brief explanations.

Question

1. The rationale behind ABC inventory management approach is that a small portion of inventory in terms of quantity might represent at a large portion in the terms of inventory value.
2. An optimal credit policy is the one that maximize the total costs of managing cash, namely carrying cost and opportunity cost

Answer 1

1. 𝗧𝗿𝘂𝗲: The ABC inventory management approach categorizes inventory into three classes (A, B, and C) based on their value and significance to the business. Typically, a small percentage of items (Class A) will make up a large percentage of the total inventory value, justifying focused management efforts on these high-value items.

2. 𝗙𝗮𝗹𝘀𝗲: An optimal credit policy aims to balance total costs related to managing cash, specifically minimizing carrying costs and opportunity costs. The goal is to find a policy that maximizes revenue and cash flow, not the total costs of managing cash.