Difficulty: Easy

Average Score: 100%

An online business uses a periodic inventory system. Which benefit does the business gain?

Rationale

The cost of implementation is low.

A periodic inventory system is generally simpler and less costly to implement than a perpetual system because it requires less sophisticated technology and fewer resources for continuous tracking of inventory levels. This cost-effectiveness makes it an appealing choice for many online businesses, especially those with limited budgets.

A (It is responsive to demand changes.) YOUR ANSWER

A periodic inventory system is not particularly responsive to demand changes since it only updates inventory levels at specific intervals. This can lead to delays in recognizing stock shortages or surpluses, making it less effective in quickly adapting to fluctuations in customer demand compared to a perpetual inventory system.

B (A lower level of inventory can be held.) YOUR ANSWER

While a periodic inventory system can help businesses manage inventory levels, it does not inherently lead to a lower level of inventory being held. In fact, businesses may end up overstocking to avoid stockouts between inventory counts, especially if demand is not accurately monitored in real-time.

C (The cost of implementation is low.) CORRECT

This choice accurately reflects one of the significant benefits of a periodic inventory system. It requires less investment in technology and training compared to a perpetual inventory system, making it a cost-effective option for businesses looking to manage their inventory without incurring high expenses.

D (There is a low risk of running out of stock.) YOUR ANSWER

A periodic inventory system does not guarantee a low risk of running out of stock. The lack of real-time inventory tracking can lead to unforeseen stockouts, particularly if demand surges unexpectedly between inventory assessments. Thus, this system can actually increase the risk of stockouts rather than mitigate it.

Conclusion

In summary, a periodic inventory system is characterized by its low implementation costs, making it a practical choice for many online businesses. However, it comes with limitations such as slower adaptability to demand changes and a potential risk of stockouts. Understanding these trade-offs is crucial for businesses when deciding on an inventory management strategy that aligns with their operational needs and budget constraints.

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