Question 12

Carrying cost includes costs paid for storage space.

Carrying costs, also known as holding costs, encompass expenses related to storing inventory, which includes costs such as warehousing, insurance, and depreciation.

A) Stockout

Stockout costs refer to the losses incurred when inventory is insufficient to meet demand, leading to potential sales losses and customer dissatisfaction. This type of cost does not involve expenses associated with the storage of inventory.

B) Carrying

Carrying costs are directly related to the expenses incurred for holding and storing inventory. These include costs for warehousing, insurance, and other expenses tied to maintaining the inventory on hand, making this option the correct answer.

C) Ordering

Ordering costs are associated with the expenses of placing and receiving orders for inventory. This may include costs such as shipping, handling, and procurement, but it does not cover storage expenses.

D) Purchase

Purchase costs refer to the actual price paid to acquire the inventory items. While this is a significant component of inventory costs, it does not include costs related to storage or holding of inventory.

Conclusion

Carrying costs are the only type of inventory cost that specifically includes expenses related to the storage of inventory, making option B the correct choice. In contrast, stockout, ordering, and purchase costs do not pertain to storage expenses, thus solidifying the accuracy of the correct answer.