The desired level of inventories is the level at which the extra cost (in lost sales) from lowering inventories by a small amount is
A) greater than the extra gain (in interest revenue and decreased storage costs).
B) zero.
C) less than the extra gain in (in interest revenue and decreased storage costs).
D) just equal to the extra gain (in interest revenue and decreased storage costs).

Question

Quizplus · Accepted Answer

The desired level of inventories is achieved when the extra cost from lowering inventories (in terms of lost sales) is just equal to the extra gain from lower inventories (in terms of interest revenue and decreased storage costs). This balance ensures that the inventory level is optimized for cost efficiency without sacrificing sales.

The Desired Level of Inventories Is the Level at Which