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Given below are two statements. One is labelled as Assertion (A) and the other is labelled as Reason (R).  Assertion (A): If the firm is prepared to incur increased cost on transportation, it may be in a position to reduce its inventory cost  Reason (R) : As in such a case, the firm can use the fastest mode of transport and rush the goods / stocks to the desired warehouse, unmindful of the cost of transportation  In the context of the above two statements related to logistics management, which of the following options is correct  1. Both A) and R) true and R) is the correct explanation of A) 2. Both A) and R) true but R) is NOT the correct explanation of A) 3. A) is true but R) is false 4. A) is false but R) is true 

Given below are two statements. One is labelled as Assertion (A) and the other is labelled as Reason (R).  Assertion (A): If the firm is prepared to incur increased cost on transportation, it may be in a position to reduce its inventory cost  Reason (R) : As in such a case, the firm can use the fastest mode of transport and rush the goods / stocks to the desired warehouse, unmindful of the cost of transportation  In the context of the above two statements related to logistics management, which of the following options is correct  1. Both A) and R) true and R) is the correct explanation of A) 2. Both A) and R) true but R) is NOT the correct explanation of A) 3. A) is true but R) is false 4. A) is false but R) is true  Correct Answer 1

Assertion (A): If the firm is prepared to incur increased cost on transportation, it may be in a position to reduce its inventory cost 

Explanation:

  1. Inventory Turnover is a measure of the number of times inventory is sold and replaced in a time period. This ratio is calculated by dividing Sales by Inventory. The time period is typically a year but can be shorter.
  2. Analyzing inventory churn helps a business to plan at all levels of its income statement. It allows one to better forecast the cash likely to be required to reinvest in inventory in the coming months based on past performance.
  3. It allows one to identify underperforming sales lines and products so that those products can be moved more quickly, either via specials or a focus on those products which may have previously been neglected.
  4. This, in turn, will free up cash flow and shelf space for higher volume or better performing products. It can also improve inventory logistics and supplier relationships.
  5. The cost of transportation can be reduced if proper attention is paid to this ratio and, finally, it allows one to consider inventory storage capacity requirements as the business expands.
  6. Similarly, if the firm is prepared to incur an increased cost of transportation, it may be in a position to reduce its inventory cost.

Therefore, the Assertion (A) is correct. 

Reason (R): As in such a case, the firm can use the fastest mode of transport and rush the goods/stocks to the desired warehouse, unmindful of the cost of transportation 

Explanation: 

  1. Inventory cost is not only the price that was paid to purchase an item but also the cost of storing and maintaining that item for however long it takes it to sell.
  2. It can be broken down into three categories: ordering costs, carrying costs, and shortage costs.
  3. These costs can be reduced if there is an increase in frequency in the transportation of goods.
  4. Thus in such case, the firm can use the fastest mode of transport and rush the goods/stocks to the desired warehouse, unmindful of the cost of transportation 

Therefore, Reason (R) is correct, and R) is the correct explanation of A)

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