Costs that vary depending on the amount of inventory in stock are known as:
A) Ordering
B) Holding
C) Shortage
D) Interest
E) None of the above

Question

Quizplus · Accepted Answer

Costs that vary depending on the amount of inventory in stock are known as holding costs. These costs include storage fees, opportunity cost of tying up capital, insurance, and obsolescence or spoilage. Ordering costs are fixed costs associated with placing an order, such as shipment and handling costs. Shortage costs are the costs associated with stockouts, or not having enough inventory to meet demand, such as lost sales or customer dissatisfaction. Interest is not directly related to inventory costs, although financing costs may be a factor in overall inventory management.

Costs That Vary Depending on the Amount of Inventory in Stock