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Risk in the Production Cycle

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Risk in the Production Cycle.

Topic: Design the internal controls for inventory and production.

Study Level: Master in Accounting.

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Solution Summary

The solution discusses the risk in the production cycle.

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INTERNAL CONTROLS FOR INVENTORY AND PRODUCTION

Inventory plays a very important role in the production process as well as in the ability of a company in meeting the volume of demand. Along the production process, goods-in-process inventories are needed while finished goods inventories would finally fill the volume of consumers' demand.
The level of inventory that a company maintains at a given point in time has cost implications. Maintaining a certain volume of inventory requires investment commitment. hence, a possibility of incurring cost of capital.
A considerably high inventory level ( higher than expected demand) would mean additional cost on the part of the company that may be caused by carrying cost, possible obsolescence and deterioration costs as well as opportunity cost. On the other hand, an inventory level that is too low would be risky on the part of the company because of a possibility that consumers' demand will not be filled. This may result to loss of customers in favour of ...

Solution provided by:
Elisa Valdez, PhD
Education
  • Bachelor of Science in Business Administration, University of the Philippines
  • Master in Business Administration, Saint Mary's University
  • Doctor of Philosophy in Education, University of the Philippines
  • Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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