What is a primary concern related to the cost of inventory?

The primary concern related to the cost of inventory is obsolescence. As time progresses, the products within inventory may become outdated or less desirable due to changes in consumer preferences, advancements in technology, or the introduction of new products. This phenomenon can lead to a significant reduction in the value of the inventory, impacting the overall financial statements of the business. When inventory becomes obsolete, not only must businesses potentially write down the value of these items, but they may also incur losses when trying to sell obsolete stock at reduced prices.

In managing inventory costs, businesses must evaluate the potential risk of obsolescence and implement strategies such as just-in-time inventory systems or regular inventory reviews to mitigate this concern. While depreciation, market fluctuations, and foreign exchange rates can also influence costs and valuations, they do not specifically address the inherent risk of inventory items losing value due to becoming outdated or unsellable.