Cost of Carrying Inventory. Lacy Products is a regional firm that operates a manufacturing plant. The plant’s operations are typical, involving raw materials, work in process, and finished goods inventories. Raw materials are purchased and stored until their introduc¬ tion into the manufacturing process. On completion, the finished products are stored in the company’s ware¬ house, awaiting final sale. LO2 A recent study indicated that Lacy’s annual cost of carrying inventory is more than 25% of the average inventory investment. Management believes that inven¬ tory carrying costs might be an excellent area in which to implement cost reductions and proposes two strate¬ gies: first, not requesting raw materials from suppliers until near the time needed in the manufacturing process, and second, transferring the finished goods to customers immediately following completion.

Required: Identify and discuss the circumstances neces¬ sary to make such a proposal feasible with respect to (1) raw materials inventory and (2) finished goods inventory.