CPIM Practice Exam

When the order quantity is increased, the cost of carrying inventory typically increases because larger order quantities lead to higher average inventory levels. This is due to the fact that when more items are stocked, the costs associated with storage, handling, and potentially insurance or spoilage also rise. Conversely, the cost of ordering often decreases when the order quantity is larger. This is because ordering in larger quantities can lead to economies of scale, where the fixed costs of placing an order are spread out over more units. Therefore, per-unit ordering costs decrease as larger orders are placed less frequently. Thus, when examining the implications of increasing order quantity, the cost of carrying inventory indeed increases, while the cost of ordering decreases. This relationship emphasizes the trade-offs that organizations must consider in inventory management and procurement strategies.