CPIM Practice Exam

How does price influence inventory carrying costs?

1. Lower prices lead to higher carrying costs

2. Inventory cost calculations do not consider price

3. Higher-priced items attract more management attention

4. Price does not influence inventory management

The correct answer is: Higher-priced items attract more management attention

The influence of price on inventory carrying costs is meaningful, particularly regarding management attention and decision-making. Higher-priced items tend to draw more scrutiny and management focus because they represent a larger financial investment for the company. This increased attention can lead to more careful monitoring of these items, resulting in strategies designed to minimize inventory carrying costs associated with expensive goods. Management is often more concerned with ensuring that high-value inventory is effectively managed to prevent losses, obsolescence, or excess carrying costs. The goal is to maintain a balance between having enough inventory to meet demand and minimizing the costs of holding that inventory, especially when the items in question are of higher value. In contrast, other options either misrepresent how price affects inventory costs or suggest a lack of relevance of price in calculations and decision-making, which isn't reflective of inventory management practices. Price does play a critical role in how inventory is handled and the strategies that are put in place to manage it effectively.