Reasons for Holding Stock

Reasons for Holding Stock

The holding of stock will result in increase in holding cost , however, an appropriate level of stock is required to be hold by the organization for following reasons.

1.Continuous Production :- 

Sufficient inventory must be available to ensure the continuous production.

2.High Purchase High Discount :- 

Normally a high stock purchase may earn high discount for the organization. The organization must calculate the difference between discount offered and holding cost of inventory.

3.Avoid future Shortages :- 

Sometime future shortage are expected which will result in increase in price of material in future.

4.Seasonal Purchase :- 

Some material has seasonal purchase for example sugar and cotton industry.
Transportation Cost:- The transportation cost reduction is also a primary reason for high stock holding.

5. Take Advantage of Low Price

sometime raw material is available in the market due to market forces or any other reason. Therefore entity would like to take advantage of low price of raw material.