Costs of the firm that rise with increased levels of investment in its current assets are called ________ costs.
A)carrying
B)shortage
C)order
D)safety
E)trading

Question

Quizplus · Accepted Answer

Carrying costs are the costs associated with holding and storing inventory or other current assets. These costs increase with an increase in investment in current assets such as inventory, accounts receivable, and cash. Examples of carrying costs include warehousing costs, insurance premiums, and the cost of capital tied up in inventory. Shortage costs (B) relate to the cost of running out of inventory or not satisfying customer demand, order costs (C) are associated with the costs of placing orders and are usually constant regardless of the level of investment in current assets, safety costs (D) are not a recognized cost category in this context, and trading costs (E) are costs incurred when buying or selling financial instruments such as stocks and bonds.

Costs of the Firm That Rise with Increased Levels of Investment