A. Cost of ordering
B. Set up cost
C. Inventory carrying cost
D. Cost of shortages
The Correct Answerfor the given question is option C. Inventory carrying cost
Inventory carrying cost is the total cost of owning and storing inventory. This includes the cost of insurance and taxes. Insurance and taxes are important factors in inventory carrying cost, as they can add up to a significant amount of money. The cost of insurance depends on the type of inventory being carried. For example, if a company is carrying a large amount of expensive inventory, the insurance costs will be higher. Taxes also vary depending on the type and value of inventory. In some cases, taxes can be a significant portion of the total inventory carrying cost.
Companies need to carefully consider all costs associated with inventory before making decisions about how much to carry. The cost of insurance and taxes should be taken into account when determining the optimal level of inventory for a company. The cost of inventory carrying includes the opportunity cost of the money invested in the inventory, the insurance cost to protect against loss or damage, and the taxes incurred on the purchase.
The opportunity cost of money invested in inventory is the return that could have been earned if that money had been invested elsewhere. For example, if a company has $100,000 worth of inventory and it costs them 10% per year to carry that inventory, then the opportunity cost is $10,000.
Insurance costs vary depending on the type and value of inventory being carried. For example, high-value items may require more expensive insurance than lower-value items. Taxes are also based on the value of inventory and can range from a few hundred dollars to several thousand dollars per year.
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