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.