Planned change in inventories

Indian Economy glossary

Also called: Planned inventory accumulation, planned decumulation · Topic: National Income Accounting: GDP, GVA and Welfare · NCERT: Class 12, Ch 2 "National Income Accounting"; Class 12, Ch 4 "Determination of Income and Employment"

Meaning

A planned change in inventories is a change in a firm's stock of unsold goods that the firm intends to make. A firm may want a bigger stock, for example before a festival season. It then produces more than it expects to sell, which is planned accumulation. If it wants a smaller stock, it produces less than expected sales, which is planned decumulation. This is part of the investment the firm intends to make.

Example

A shirt firm starts with 100 shirts in stock and expects to sell 1,000. To raise its stock to 200, it produces 1,100 shirts. To cut its stock to 25, it produces only 925.

Don't confuse with

  • Unplanned change in inventories: this change is not intended. It happens when actual sales differ from expected sales. For example, if the firm sells only 600 shirts, 400 shirts pile up that it never meant to keep.

Related concepts

Read more