A firm buys a key manufacturing part from a supplier. Lot size is one hundred units, worth one week of (steady) production on average. In order to save transportation costs, the firm is considering increasing the lot size to eight hundred units. The cost of the part is $400 and the firm pays its supplier in thirty days.

a. Explain why average inventory will increase by $140,000 in the long term.

b. What is the impact of increasing the lot size on the assets of the firm upon the reception of the first larger batch?

c. What is the impact of increasing the lot size on the assets of the firm upon the payment of the first larger batch?

d. Will accounts payable increase in the long term? Explain why or why not.