Question

There are two Statements, Assertion and Reason (R).
Assertion : Larger the lead time, larger is the quantity of material required to be stored and larger shall be the amount of working capital required.
Reason (R): If the raw material does not have a record of uninterrupted availability, higher stock levels may be required. Choose the correct alternative from the alternatives given below:

• A. Assertion is false and Reason (R) is true.
• B. Both Assertion and Reason (R) are false.
• C. Assertion is true and Reason (R) is false.
• D. Both Assertion and Reason (R) are true and Reason (R) is the correct explanation of Assertion .

Hint:

Lead time is the delay between ordering and receiving materials. Longer lead times require higher material stock to maintain uninterrupted production.- Working capital is the capital required for day-to-day operations and is impacted by the level of inventory held.

Answer 1

The Correct Option is D

To determine the correct relationship between the Assertion and the Reason (R) given in the question, we must analyze both statements:

1. Assertion: "Larger the lead time, larger is the quantity of material required to be stored and larger shall be the amount of working capital required."
   • This statement highlights the direct impact of lead time on inventory and working capital. Lead time is the period between ordering and receiving the raw material. A longer lead time means that a company needs to hold a larger buffer stock to prevent disruptions in production. More inventory leads to increased working capital requirements due to the costs associated with purchasing and storing this stock. Hence, the assertion is true.
2. Reason (R): "If the raw material does not have a record of uninterrupted availability, higher stock levels may be required."
   • This reason correctly explains the need for maintaining higher stock levels when the availability of raw materials is inconsistent. Companies facing irregular supply must keep higher inventory levels as a risk management strategy to avoid production halts, again raising the need for additional working capital. Thus, the reason is also true and supports the assertion effectively.

Considering the analysis above, the correct answer is:

Both Assertion and Reason (R) are true and Reason (R) is the correct explanation of Assertion.