Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories?

Question

BlackTom AI · Accepted Answer

When planning the desired level of inventories, several potential factors might come to mind, so it’s useful to evaluate each option in turn.
Option 1: Statutory requirements. While regulatory constraints can influence broader supply chain practices, they do not typically determine the optimal level of inventory to hold. Statutory rules might affect reporting or compliance, but the planning of inventory levels is driven more by economics and operations, not by statutes alone.
Option 2: Selling price of the finished product. The selling price can influence demand and pricing strategy, which in turn may affect how much inventory to keep; however, it is not a direct major factor for setting the inventory level itself. Inventory decisions are more tightly linked to costs and service levels rather than price directly dictating quantities.
Option 3: General administrative policy of the company. Corporate policies can shape many aspects of operations, including procurement cycles or approvals, but the question seeks a major factor that should be considered specifically for determining inventory levels. General policy alone is too broad and indirect to be the primary driver of inventory quantity decisions.
Option 4: Costs of carrying inventory. This is a central and direct consideration in inventory planning. Carrying costs (including storage, insurance, capital tied up in stock, obsolescence, and handling) influence how much inventory is cost-effective to hold. Managers balance ordering costs against holding costs to determine optimal stock levels, service levels, and safety stock, making this the principal factor among the options presented.
Thus, evaluating each option shows that carrying costs are the primary, most direct driver for deciding the desired level of inventories, whereas the other factors play supporting or indirect roles at best.

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Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories?

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