The cost of holding inventory is known as
A)ordering cost.
B)setup cost.
C)stock-out cost.
D)carrying cost.

Question

Quizplus · Accepted Answer

Carrying cost refers to the expenses incurred in storing and maintaining inventory, such as rent, utilities, insurance, and interest on financing. It is the most common and significant cost associated with holding inventory. Ordering cost refers to the expenses incurred in processing and placing an order for inventory, setup cost refers to the expenses incurred in preparing a machine or production line for a new batch of production, and stock-out cost refers to the lost sales or penalties incurred when a customer cannot obtain the desired item due to insufficient inventory. While these costs are also important in inventory management, they do not capture the ongoing expense of keeping inventory on hand.

The Cost of Holding Inventory Is Known as