Question

The suppler for Omega Corporation has offered the company a 5 percent discount if it will order more units less frequently. If Omega accepts the supplier's offer, the cost of carrying inventory will ___ and the cost of running out of inventory will ___.

A. rise; stay the same
B. fall; stay the same
C. rise; decrease
D. fall; decrease

Answer 1

If Omega Corporation accepts the supplier's offer of a 5 percent discount for ordering more units less frequently, the cost of carrying inventory will fall and the cost of running out of inventory will decrease. So, the correct answer is option d.

Step-by-step explanation:

If Omega Corporation accepts the supplier's offer of a 5 percent discount for ordering more units less frequently, the cost of carrying inventory will fall and the cost of running out of inventory will decrease.

When Omega orders more units less frequently, it means that they will have more inventory on hand at any given time, resulting in a higher carrying cost. However, the 5 percent discount from the supplier will help offset this increase in carrying cost.

On the other hand, by ordering more units less frequently, Omega will reduce the risk of running out of inventory, which can lead to lost sales and potential customer dissatisfaction. This decrease in the cost of running out of inventory will contribute to overall cost savings for the company.

So, the correct answer is option d.