Which of the following statements about holding costs is TRUE?

The statement that holding costs increase with bulk purchases is correct because, when a company opts for bulk purchasing, it typically results in a greater volume of inventory being stored. This increase in inventory can lead to higher holding costs due to several factors, including increased storage space requirements, higher insurance costs to cover more inventory, and potential spoilage or obsolescence of goods sitting in stock for a longer period.

Moreover, managing and maintaining larger quantities of inventory often incurs logistics and administrative costs that add up over time. As such, while bulk purchasing may reduce costs per unit, it can lead to an overall rise in holding costs as the inventory levels increase. Understanding this dynamic helps companies balance the benefits of bulk buying against the potential costs of holding excessive inventory.