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A firm selling its product for $25,000 has overproduced, increasing inventory by 40,000 units at a cost of $15,000 per unit. What is the impact of the inventory change on cash flow?

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Tundexi

Answer:

Increasing Inventory by 40,000 units at a cost of $15,000 per unit

The Cost of producing 40,000 units extra = $40,000 *$15,000 = $600,000,000

Conclusion: As this is an additional cost incurred by the firm by increasing inventory by 40,000 unit at $15,000 per unit, it will be term as cash outflow.  The impact of the inventory change on cash flow is outflow.

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