Asked by Lindsey Conrad on Jun 03, 2024

verifed

Verified

Which of the following is the best definition of shortage costs?

A) A written statement by a bank that money will be paid, provided conditions specified in the letter are met.
B) Short-term financing in which the factor purchases all of a firm's receivables and forwards the proceeds to the seller as soon as they are collected.
C) The time period between the acquisition of inventory and when cash is collected from receivables.
D) Loan negotiated with banks for day-to-day operations.
E) Costs that fall with increases in the level of investment in current assets.

Shortage Costs

Shortage costs are the expenses incurred by a business when it does not have enough inventory or resources to meet demand, including lost sales and dissatisfied customers.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the business's operating cycle, whichever is longer.

Investment

Assigning monetary assets in hopes of achieving financial gain or income.

  • Pinpoint and expound on the various costs incurred from maintaining inventory, encompassing both carrying and shortage expenses.
verifed

Verified Answer

ZK
Zybrea KnightJun 04, 2024
Final Answer :
E
Explanation :
Shortage costs are associated with running out of inventory or not having enough assets to meet demand. They decrease as a company invests more in its current assets, ensuring that it has enough resources to meet customer needs without running into shortages.