CPIM Practice Exam

Which of the following describes ordering costs?

1. Costs that decrease with larger order quantities

2. Costs associated with holding inventory for long periods

3. Costs that increase with the number of orders placed

4. Costs related to selling inventory

The correct answer is: Costs that increase with the number of orders placed

Ordering costs are directly tied to the actions and processes involved in placing orders for inventory. These costs encompass various expenses such as order processing, shipping, and any other costs incurred every time an order is made. Therefore, as the number of orders increases, so do the cumulative costs associated with processing these orders, making this choice accurately reflect the nature of ordering costs. On the other hand, ordering costs are inversely related to the size of the orders placed. In scenarios where larger order quantities are purchased, the frequency of orders diminishes, leading to reduced ordering costs overall. This context clarifies that the option articulating that costs decrease with larger order quantities does not describe ordering costs accurately. Costs related to holding inventory are primarily concerned with storing goods over time and will not typically impact the calculation of ordering costs. These holding costs include storage, insurance, and depreciation of the products. Lastly, costs related to selling inventory involve expenses that arise after the order is fulfilled, such as marketing and sales commissions, which are distinct from the costs incurred in the ordering process. This further substantiates that option regarding selling inventory is not a valid description of ordering costs.