Explain what is meant by theoretical inventory
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Explain what is meant by theoretical inventory and what its implications are for a manager.
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This solution fully explains the concept of theoretical inventory and provides examples for better understanding.
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Theoretical inventory is the minimum amount of inventory that could be in process or ready for sale if everything worked at optimum. That means that in a manufacturing company, those parts of inventory in process and unsold are costly because they have been purchased but not yet sold.
Included is raw material, work in process and finished goods. In the perfect system, there would be no delays in the manufacturing process of receiving raw material, processing them and selling them. The system describes the very least amount in ...
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