What is the difference between planned and unplanned inventory accumulation? Write down the relation between change in inventories and value added of a firm.
Difference between planned and unplanned inventory accumulation are:
Planned inventory accumulation In case of an expected fall in sales, the firm will have unsold stock of goods which has been anticipated. Hence, there will be planned accumulation of inventories. Unplanned inventory accumulation In case of an unexpected fall in sales, the firm have unsold goods which it had not anticipated. Hence, there will be unplanned accumulation of inventories.
Relation between change in inventories and value added Change in Inventories of a Firm during a Year = Value Added + Intermediate
Goods Used by the Firm - Sale of the Firm during a Year and Value Added in Net Contribution Made by a Firm in the Process of Production i.e. Value Added = Value of Production - Value of Intermediate Goods Used