The Optimal Level of Inventories Is the Level at Which

question 311

True/False

The optimal level of inventories is the level at which the extra cost (in lost sales) from lowering inventories by a small amount is greater than the gain (in interest revenue and decreased storage costs).

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Definitions:

Activity-based Costing

An accounting method that assigns costs to products or services based on the activities they require, aiming for more accurate cost information.

Activity-based Costing

A costing methodology that assigns overhead and indirect costs to specific activities, helping to more accurately determine the cost of products or services.

Customer Margin

The profit margin attributed to a particular customer, calculated by subtracting the costs associated with serving that customer from the revenue generated.

Activity-based Costing

Activity-based costing is a more precise method of product costing that identifies activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption.