Question

Discuss the advantage and disadvantage of level production schedules in firms with cyclical sales.

Short answer

The level production in cyclical industry helps in reducing the inefficiencies of an organization during the crash production period. But it requires a lot of funds to maintain the stock of inventory during the contraction period. It may lead to the risk of obsolesence associated with the inventory.

Step-by-step solution

Cyclical industry

Cyclical industry mean the industry which sensitive to the business cycle. It means the revenues are higher during the economic properity and expansion period and lower during the economic downturn and contraction.

Advantage and disadvantage of the level production schedules in the firm with cyclical sales

Advantage of the level of production

The level of production in a cyclical industry allows the organization the maintenance of a stable workforce and reduces the inefficiencies caused due to shutting down of the unit during the crash production period.

The disadvantage of the level of production

Under the level of production in a cyclical industry, a company is required to maintain a large stock of inventory during the low-sale period. This inventory may be expensive and require more funds with a risk of inventory obsolescence.