Which of the following statements is not true?
A) Optimal inventory levels involve a trade-off between carrying costs and order costs.
B) Carrying costs include the cost of storing goods as well as the cost of capital tied up in inventory.
C) Inventory levels will be lower when storage or interest costs are high and will be higher when restocking costs are high.
D) Inventory level does not rise in direct proportion to sales. As sales increase, the optimal inventory level rises, but more than proportionately.

Question

Quizplus · Accepted Answer

This statement is not true because inventory levels actually rise in direct proportion to sales in a simple model known as the economic order quantity (EOQ) model. However, in reality, inventory levels may not rise in direct proportion to sales due to factors such as lead time variability and demand variability. Additionally, the optimal inventory level may rise more than proportionately as sales increase due to economies of scale in ordering and holding inventory.

Which of the Following Statements Is Not True