Question 16

Surplus inventory that may expire before being sold

The beverage company is likely to face surplus inventory due to the unexpected rainy weather, which can result in lower sales than anticipated despite the increased production budget aimed at meeting higher summer demand. This surplus can lead to products sitting unsold for too long, risking expiration.

A) Higher consumer demand than expected

This option is incorrect because the company anticipated higher sales due to summer demand. However, the unexpected rainy weather can lead to lower consumer demand, not higher, contradicting this choice.

B) Decreased supplier costs

This option is also incorrect as it does not relate to the challenges posed by the production budget decision. The decision to increase production does not inherently lead to decreased supplier costs; in fact, it could result in higher costs if more materials are needed.

C) Reduced production capacity

This choice is incorrect because the company has increased its production budget to enhance supply, indicating that it intends to increase rather than reduce production capacity. Thus, the challenge does not arise from a reduction in capacity.

D) Surplus inventory that may expire before being sold

This option is correct as the company, anticipating higher sales, increased its production. However, the rainy weather could lead to fewer sales, creating a surplus of inventory, which poses the risk of expiration before the products can be sold.

Conclusion

Surplus inventory that may expire before being sold is the primary challenge the beverage company faces due to its production budget decision. While other options suggest various issues, they do not align with the operational impacts of unexpected weather on sales and inventory management. The increase in production, without a corresponding rise in sales due to adverse weather, directly leads to the risk of unsold, perishable goods.