CA Intermediate · Financial Management and Strategic Management · Management of Inventory
Which of the following is a carrying (holding) cost of inventory rather than an ordering cost?
Insurance premium on stored stock is a carrying cost because it depends on the quantity of inventory held and how long it is kept. Preparing orders, inspecting each consignment and freight per order arise each time an order is placed, so they are ordering costs.
- ACost of preparing and placing a purchase order
- BInsurance premium on stored stockCorrect
- CInspection charges on receipt of each consignment
- DTransportation charges per order placed
Explanation
Carrying costs rise with the quantity held and the time stored, such as insurance, storage and obsolescence. The other options are incurred per order placed, so they are ordering costs. Insurance on stored stock therefore is the carrying cost.
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