Question

Which statement about the price-break model is true?

1 -When you purchase a higher quantity to receive a lower price per unit, the annual order cost will increase.

2 - When you purchase a higher quantity to receive a lower price per unit, the annual holding cost will decrease.

3 -When you purchase a higher quantity to receive a lower price per unit, the annual holding cost and annual order cost will decrease.

4 - When you purchase a higher quantity to receive a lower price per unit, the annual holding cost will increase.

Answer 1

The correct statement is that when you purchase a higher quantity to receive a lower price per unit, the annual holding cost will decrease.

Step-by-step explanation:

The correct statement about the price-break model is:

1. When you purchase a higher quantity to receive a lower price per unit, the annual holding cost will decrease.

In the price-break model, purchasing in larger quantities leads to a decrease in the holding cost. This is because when you purchase more units, you can take advantage of economies of scale, which allows for lower costs per unit. As a result, the annual holding cost will decrease because you are able to store larger quantities at a lower cost.