For fixed order quantity inventory system, which of the following costs is increased when order size...

For fixed order quantity inventory system, which of the following costs is increased when order size (Q) is increased?

a) Setup cost

b) Ordering cost

c) Start-up quality cost

d) Insurance cost

e) Receiving inspection cost

Expert Solution

Answer is b .) Ordering cost.ordering costs increases when the order size is increased. First let us know about the fixed quantity inventory system. In a fixed inventory system , the maximum and minimum levels of inventory a company should contain will be fixed .the inventory is ordered when the stock falls below the minimum level or the point which is called reorder point. And if a company wants to increase the order size of the inventory, then its ordering costs will be increased. (Basically ordering costs are the costs incurred by the company in the process of creating an order for the supplier. Eg:cost to prepare purchase requisition, carrying cost , etc. So if a company wants to increase its order size , obviously these ordering costs will also increase based on quantity of the order.)

keosha answered 2 years ago

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