If the marginal order cost exceeds the marginal carrying cost of inventory,then the firm:
A) has minimized its total carrying costs.
B) should increase its order size.
C) should decrease its order size.
D) has maximized its order costs.

Question

Quizplus · Accepted Answer

If the marginal order cost exceeds the marginal carrying cost of inventory, it indicates that the firm is ordering in small quantities more frequently, leading to higher order costs. Therefore, it would be beneficial for the firm to increase its order size to reduce the number of orders and bring down the order costs. This would result in a higher carrying cost due to the increased inventory, but it would be economically efficient as long as the carrying cost is less than the order cost.

If the Marginal Order Cost Exceeds the Marginal Carrying Cost