Question

As most US firms, the big US automakers Ford, GM and Chrysler account under the absorption method. It is well known the case when they piled up inventories, they produced more that they could sale in order to ______.

		to increase short-term profitability
		to reduce marketing costs
		to increase long-term profitability
		to reduce distribution costs

Answer 1

Producing more than selling will pile up inventories. this will

• Increase the storage costs, hence adversely impact short term profitability. Hence incorrect
• marketing costs need to be incurred higher to make the sale to ensure the there are no obselet inventories in stock.
• Profitability in short term may seem to be a no. But piling up can supply inventories at a lesser price when economy gets inflated. Hence profitability in long term can be higher So correct.'
• Lastly distribution costs are dependent on sales made. Hence cannot be minimised based on inventories held.

Thus Option C is correct.