List all costs associated with inventory and give a descriptive example of each

Business & Finance
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List all costs associated with inventory and give a descriptive example of each

Jan 16th, 2015

There are 4 costs associated with inventory:
1. Ordering Cost: These are costs that are associated with ordering a new quantity of raw materials.
For example: A clothing store ordering more hangers to hang their garments on.

2. Setup Cost: These are costs that are associated with getting equipment prepared for processing or activity based jobs. 
For example: Chip companies will utilize machinery to prep and bag their chips.

3. Holding Cost: These are costs that are associated with the expenses of maintaining inventory of goods. Basically, it is the cost of keeping inventory for longer than a company may predict. 
For example: A clothing store keeping clothing that is not selling.

4. Shortage Cost:These are costs that are accumulated when their is a shortage of products or out of stock products. 
For example: An online website selling an item that is out of stock. 

I hope this helps! 

Jan 16th, 2015

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