Question

Which of the following would occur if a firm chose not to hold inventory for a given product?

a. Holding costs would increase
b. Stockout costs would increase
c. Order placement costs would increase
d. None of the above

Answer 1

C. Order placement costs would increase

Step-by-step explanation:

Order placement costs are those incurred when ordering a product: for example, the wages of the employees who place the orders, the shipping costs, the cost of tariffs and duties in case the products are imported from abroad, and any other specific costs associated with the process of getting the product from the source to the firm.

If a company chooses not to hold inventory, order placement costs will increase in the moment that they get an order for the good which is not in stock, simply because the good will have to be ordered.