A supplier is offering a price discount if more is ordered at one time. The offer should be analyzed to determine if a larger order is appropriate considering:
A supplier is offering a price discount if more is ordered at one time. The offer should be analyzed to determine if a larger order is appropriate considering:
When considering a supplier's offer of a price discount for ordering larger quantities, it is crucial to compare the reduction in material cost with the impact on total holding costs. This analysis allows the evaluation of whether the savings from the discounted price are enough to offset the additional costs of holding more inventory, such as storage, insurance, and potential obsolescence. Therefore, the most appropriate analysis should focus on the balance between reduced material costs and increased holding costs.
I tink answer B is correct. There need to be a balance btw costs of holding inventory and discounts for ordering more
The correct answer is B.
The reduction in material cost compared to the impact on total holding costs, is a fundamental consideration when assessing the appropriateness of a larger order.
When a supplier offers a price discount for larger orders, the decision should be based on comparing the reduction in material cost with the potential impact on total holding costs. This analysis helps to determine if the savings from the price discount outweigh the additional costs incurred by holding more inventory.
I am ok with A Impact should be assessed versus ABC activity based costing ( holding cost , insurance cost , obsolesce , ..)