The suppler for Omega Corporation has offered the company a 5 percent discount if it will order more units less frequently. If Omega accepts the supplier's offer, the cost of carrying inventory will ______ and the cost of running out of inventory will ______.
A) rise; decrease
B) rise; stay the same
C) fall; decrease
D) fall; stay the same

Question

Quizplus · Accepted Answer

If Omega Corporation accepts the supplier's offer and orders more units less frequently, the company will need to carry larger quantities of inventory, which will increase the cost of carrying inventory. On the other hand, the risk of running out of inventory will decrease since the company will have larger quantities on hand, thus decreasing the cost of running out of inventory. Therefore, the cost of carrying and the cost of running out of inventory will move in opposite directions, which leads to a rise in the cost of carrying inventory and a decrease in the cost of running out of inventory.

The Suppler for Omega Corporation Has Offered the Company a 5