Replacement costs and their limitations during rapid inflation, By Bolutife Oluwadele

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Ordinarily, replacement costs should not be anything complicated or unusual. However, in reality, it has become so.

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Let us also remind ourselves that engaging in business activities is aimed at making some gains by exchanging products and services. So, if the current prices cannot conveniently replace the items sold, the logical explanation will be that the profit made based on previous costing has been eroded. Pricing may become unstable and even unreliable. The sellers may have some difficulties tracking the changes, so much that tracking effectively becomes even more challenging, resulting in some form of unjustifiable arbitrariness in fixing prices.

Stockpile of unsold inventory. There is a high possibility of unsold inventory or stockpiling when out-pricing and low patronage exist. The consequence is that products may be susceptible to damage, obsolescence, theft, and other similar things that sum up to a total loss of revenues.

 

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