Asked by hilal erkan on Jul 07, 2024
Verified
At the ideal level of inventory, the:
A) Shortage costs will equal zero.
B) Carrying costs will equal zero.
C) Both the shortage costs and the carrying costs will equal zero.
D) The shortage costs will equal the carrying costs.
E) The shortage costs will equal exactly twice the carrying costs.
Shortage Costs
Shortage Costs are the costs incurred when demand exceeds supply, including lost sales, backorder costs, and potential deterioration of customer satisfaction.
Carrying Costs
Costs related to maintaining inventory that encompass storage fees, insurance, taxes, and the potential losses from not using the funds elsewhere.
Ideal Level
Ideal level often refers to the optimal state or condition for operations, efficiency, or functionality in various contexts.
- Gain insights into how a company's strategies for managing cash affect its business operations and influence the duration of the operating cycle.
Verified Answer
SR
Stephanie RiggleJul 09, 2024
Final Answer :
D
Explanation :
At the ideal level of inventory, the goal is to balance the costs associated with maintaining inventory. This means that the costs of having too little inventory (shortage costs) are balanced with the costs of having too much inventory (carrying costs), leading to the conclusion that at the ideal level, the shortage costs will equal the carrying costs.
Learning Objectives
- Gain insights into how a company's strategies for managing cash affect its business operations and influence the duration of the operating cycle.