Our inventory levels can have a huge impact on lots of things. Spoilage, holding costs, whether or not we meet customer delivery dates, and so much more. When it comes time to assess our overhead rates our inventory can be hiding some big issues too.

What if our rate goes down? Suddenly the overhead hiding in all our finished goods inventory is worth less than it was before, reducing the value of our inventory, causing a write-down. No one enjoys making that journal entry! The same is true in reverse, if our overhead goes up, our inventory value goes up. But then our costs go up as well, again, most people don't enjoy that change either. 

What are the pros and cons when inventory goes up?