Companies have found that offering discounts to customers in return for early payment can be counterproductive in terms of the resulting adverse effect on profitability. This is when the reduction in profitability outweighs any marginal improvements gained from the benefit of a reduction in the working capital requirement. Required: Critically evaluate the methods that can be adopted to manage and achieve the efficient control of inventories and gain the resulting benefits for improving cashflow and ultimately profit in a business.

Companies have found that offering discounts to customers in return for early payment can be counterproductive in terms of the resulting adverse effect on profitability. This is when the reduction in profitability outweighs any marginal improvements gained from the benefit of a reduction in the working capital requirement. Required: Critically evaluate the methods that can be adopted to manage and achieve the efficient control of inventories and gain the resulting benefits for improving cashflow and ultimately profit in a business.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter21: Variable Costing For Management analysis

Section: Chapter Questions

Problem 9DQ: Explain why rewarding sales personnel on the basis of total sales might not be in the best interests...

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