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