Which of the following is a nonlinear cost related to order size in inventory management?

• A. Cost of goods sold
• B. Quantity discount cost
• C. Ordering cost
• D. Carrying cost

Answer: (B)

Verified step by step guidance

1. Understand the concept of nonlinear costs: Nonlinear costs are costs that do not change proportionally with the activity level. In inventory management, these costs may vary based on factors such as order size or quantity.
2. Analyze the options provided: Review each cost type to determine if it is nonlinear. For example, 'Cost of goods sold' typically varies directly with the number of units sold, making it linear. 'Ordering cost' and 'Carrying cost' are often fixed or linear within certain ranges.
3. Focus on 'Quantity discount cost': Quantity discounts are reductions in price based on the size of the order. These discounts create a nonlinear relationship because the cost per unit decreases as the order size increases, which is not proportional.
4. Relate the concept to inventory management: In inventory management, quantity discount costs are nonlinear because they depend on the size of the order and can lead to cost savings that are not directly proportional to the order size.
5. Conclude that 'Quantity discount cost' is the correct answer: Based on the analysis, quantity discount costs are nonlinear and related to order size in inventory management.