Question

Assuming the cost to place an order is constant, all other things remaining the same, DECREASING the order quantity (Q*) causes total ANNUAL ordering costs to:
1. Increase.
2. Remain the same.
3. Cannot be determined.
4. Decrease.

Answer 1

Answer:

2. Remain the same.

Explanation:

Ordering cost deals with the entire cost that is uncured by a business entity for placing an order for products used in production. this cost involves both the cost of the goods ordered and all other associated costs of ordering the commodity like documentation cost, goods inspection cost,  cost of arranging the goods in the store, e.t.c.

Where the cost of placing an order is constant all things being equal (e.g. the number of order in a year and change in ordering cost as a result of inflation e.t.c. are held constant).  that is all other things remaining the same, a decrease in ordering quantity will not increase or reduce total annual ordering cost.