Which one of the following statements is correct for a firm that currently has total costs of carrying and ordering inventory that are 50% higher than total carrying costs?
A) Current order size is greater than optimal.
B) Current order size is less than optimal.
C) Per unit carrying costs are too high.
D)The optimal order size is currently being used.

Question

Quizplus · Accepted Answer

If the total costs of carrying and ordering inventory are 50% higher than total carrying costs, it means that the ordering costs are too high compared to carrying costs. This suggests that the firm is ordering more frequently and in smaller quantities, which results in higher ordering costs. Therefore, the optimal order size is likely greater than the current order size, and the firm should increase its order size to reduce the frequency of orders and lower the ordering costs.

Which One of the Following Statements Is Correct for a Firm