Which of the following costs is a relevant inventory stockout cost under EOQ decision model?
A) The costs of obsolescence and costs of insurance that change with the quantity of inventory held.
B) The return forgone by investing capital in inventory rather than elsewhere.
C) The lost contribution margin on sales forgone as a result of customer dissatisfaction due to unavailability of goods.
D) The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.

Question

Quizplus · Accepted Answer

A relevant inventory stockout cost is a cost that a company may incur when the demand for inventory exceeds its supply. The lost contribution margin on sales forgone as a result of customer dissatisfaction due to unavailability of goods is a relevant inventory stockout cost under EOQ decision model because it directly affects the company's revenue and profits. Option A is an irrelevant cost because it is a cost associated with inventory holding, but not stockouts. Option B is not a relevant inventory stockout cost because it is an opportunity cost that is already considered in the calculation of the EOQ. Option D is an irrelevant cost because it is a cost of holding inventory, not of stockouts.

Which of the Following Costs Is a Relevant Inventory Stockout