The correct answers are: Cost of capital tied up; Administration costs associated with placing an order; Deterioration, obsolescence and pilferage costs.
The reorder quantity will affect the following:
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The average level of inventory held during the year (if only a few large orders are placed, average inventories will be higher than if frequent, small orders are placed).
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The number of orders placed during the year (the larger the order size, the fewer the orders needed).
The annual costs of capital tied up, deterioration, obsolescence and pilferage are all likely to vary with the level of inventory held through the year, and are thus affected by the reorder quantity.
Annual administration costs of placing an order will vary with the number of orders placed, and are also thus affected by reorder quantity.
Inventory shortage costs are relevant to the decision regarding optimum reorder level (not quantity) - i.e. the level to which the inventory is allowed to fall before placing an order.
Annual delivery costs charged on a per unit basis will be the same in total (total purchases x delivery charge) regardless of how the purchases are split between orders during the year.
