Despite its usefulness, industrial classification data pose some disadvantages. Which of the following is an example of a limitation of the North American Industry Classification System (NAICS)?
A) Frito Lay maintains its own network of logistics and supply chain services and often shifts products to other Frito Lay manufacturing facilities. The NAICS could overstate the shipments since it has no way to account for products that are shipped between two establishments within the same firm.
B) The NAICS categories the industry into 20 sectors which is fewer than provided by the SIC system.
C) The NAICS data is provided every 10 years, so the results are not very current.
D) The NAICS data is less current than the SIC system.

Question

Quizplus · Accepted Answer

The limitation of the North American Industry Classification System (NAICS) described in option A is that it may overstate shipments since it has no way to account for products that are shipped between two establishments within the same firm. This is because the NAICS classifies establishments based on their primary activity and does not capture inter-firm or intra-firm transactions. Option B is inaccurate because the NAICS provides more categories than the SIC system. Option C is incorrect because the NAICS data is updated every five years, not 10. Option D is also incorrect because the NAICS data is more current than the SIC system.

Despite Its Usefulness, Industrial Classification Data Pose Some Disadvantages