Difficulty: Easy

Average Score: 100%

A sporting-goods store relies on a perpetual inventory system. What is one drawback of this system?

Rationale

A significant initial investment of financial capital.

Implementing a perpetual inventory system requires a substantial financial investment in technology and software that can track inventory in real-time. This upfront cost can be a considerable drawback for sporting-goods stores, especially smaller businesses with limited budgets.

A (A significant initial investment of financial capital) CORRECT

This choice accurately identifies a primary drawback of a perpetual inventory system. The technological infrastructure needed, including inventory management software and possibly hardware like barcode scanners, entails a significant initial financial commitment that may be challenging for some stores to manage.

B (A costly plan of regular system maintenance) YOUR ANSWER

While maintenance is necessary for any system, the costs associated with maintaining a perpetual inventory system are not typically regarded as a major drawback. In fact, many modern systems offer ongoing support and updates that can mitigate high maintenance costs, making this option less relevant as a disadvantage.

C (A need for physical counting to determine inventory levels) YOUR ANSWER

Perpetual inventory systems are designed to continuously update inventory levels in real-time, reducing the need for frequent physical counts. While occasional counts are still necessary to ensure accuracy, this is not seen as a significant drawback of the system, as it enhances overall inventory management.

D (Reduced flexibility with supplier replenishment) YOUR ANSWER

A perpetual inventory system can actually enhance flexibility with supplier replenishment by providing accurate, real-time data on stock levels. This allows for timely orders and more responsive supply chain management, making this choice incorrect as a disadvantage.

Conclusion

In summary, while a perpetual inventory system offers numerous advantages in accuracy and efficiency, the significant initial financial investment required stands out as a notable drawback. Other concerns, such as maintenance costs, physical counting needs, and supplier flexibility, are either manageable or not substantive disadvantages, reinforcing the financial aspect as a critical consideration for businesses contemplating this inventory method.

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