Unlike holding cost, stockout cost:
A) does not include the transaction costs of overtime work and shipping.
B) includes inventory taxes and the cost of obsolescence.
C) is incurred when a company runs out of a product.
D) is also known as carrying cost.

Question

Quizplus · Accepted Answer

Stockout cost is the cost incurred when a company runs out of a product, including loss of sales, possible loss of customers, and potential damage to reputation. Holding cost, on the other hand, includes the cost of storing and managing inventory, such as rent, labor, insurance, depreciation, and interest on capital. Option A is incorrect because holding cost includes transaction costs. Option B is incorrect because it describes other types of costs associated with inventory management. Option D is incorrect because it is another term for holding cost.

Unlike Holding Cost, Stockout Cost