CPIM Practice Exam

Which of the following decreases when the order quantity increases?

1. Safety stock

2. Cost of carrying inventory

3. Cost of ordering

4. Frequency of orders

The correct answer is: Cost of ordering

When considering how order quantity affects various elements of inventory management, it is important to understand the relationship between order quantity and the costs associated with ordering and carrying inventory. As the order quantity increases, the frequency of orders decreases. This is because larger order quantities mean that each order placed will cover a longer period of demand. Consequently, as businesses place fewer orders over time, the total cost associated with placing those orders — often referred to as the cost of ordering — will decrease. This ties in with concepts such as the Economic Order Quantity (EOQ), which aims to minimize total inventory costs, including ordering and carrying costs. In essence, ordering larger quantities can lead to a reduction in the number of orders needed, thus lowering the overall cost related to placing orders. Understanding this concept helps inventory managers optimize their ordering strategies and costs effectively.