CA Intermediate · Financial Management and Strategic Management · Management of Inventory
Which of the following is a carrying (holding) cost of inventory, as distinct from an ordering cost?
Insurance premium on stock held in the warehouse is a carrying cost because it is incurred for keeping inventory on hand. Order placement, receiving and inspection, and invoice processing are incurred each time an order is made, so they are ordering costs.
- ACost of placing purchase orders with suppliers
- BInsurance premium on stock held in the warehouseCorrect
- CCost of receiving and inspecting each delivery
- DClerical cost of processing supplier invoices
Explanation
Carrying costs arise from holding stock: storage, insurance, obsolescence, pilferage and interest on funds blocked. Placing orders, receiving and inspecting deliveries and processing invoices are all incurred per order, so they are ordering costs.
Did you get it right without looking?
One question tells you little. A timed set on Management of Inventory shows your real accuracy, how long you take and where you lose marks.
More Management of Inventory questions
- Which of the following is a carrying (holding) cost of inventory rather than an ordering cost?
- Tulsi Foods buys 7,200 units annually. Ordering cost is Rs 50 per order, carrying cost is 20% of purchase price. Price is Rs 10 per unit for…
- In ABC analysis of inventory, which treatment is most appropriate for Category A items?
- Anand Auto Ltd has a lead time of 10 days, maximum daily usage of 60 units and normal daily usage of 50 units. The maximum lead time is 14 d…
- Which of the following best describes the Just-in-Time (JIT) approach to inventory management?
- Mehta Traders buys 14,400 units a year. Ordering cost is Rs 50 per order and carrying cost is Rs 4 per unit per year. What is the total of a…