Which of the following is the correct statement about total ordering cost?

Which of the following is the correct statement about total ordering cost?
A . Rise as the average stock level rises
B . Equal the number of orders placed times the cost of placing an order
C . Rise as the order quantity rises
D . Fall with the per period usage rate

View Answer

Answer: B

Explanation:

Typically, ordering costs include expenses for a purchase order, labor costs for the inspection of goods received, labor costs for placing the goods received in stock, labor costs for issuing a supplier’s invoice and labor costs for issuing a supplier payment. These costs are irrelevant from the size of the order and are incurred every time a firm places an order.

The total ordering cost will be equal to ordering cost per order multiply with number of orders.

Reference: CIPS study guide page 99-100

LO 2, AC 2.2