A Supplier Is Offering a Price Discount If More Is

question 162

Multiple Choice

A supplier is offering a price discount if more is ordered at one time. The offer should be analyzed to determine if a larger order is appropriate considering:

• A) the impact of the increase in average inventory levels on ABC designations
• B) the reduction in material cost compared to the impact on total holding costs
• C) the impact of additional items on indirect costs
• D) the increase in transportation costs compared to the reduction in ordering cost

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Definitions:

Asymmetric Information

A situation where one party in a transaction has more or better information than the other, leading to an imbalance in power and potentially unfair outcomes.

Hidden Action

A situation in which an agent's actions are not fully observable by the principal, potentially leading to moral hazard.

Moral Hazard

A situation where one party engages in risky behavior knowing that it is protected against the consequences, often due to an asymmetry of information or a misalignment of incentives.

Imperfectly Monitored

A situation where there is insufficient oversight or observation, often leading to non-compliance or deviation from expected standards.