The annual relevant carrying costs of inventory consists of the sum of the:
A)ordering costs and carrying costs
B)stockout costs and carrying costs
C)incremental costs plus the opportunity costs of capital
D)incremental costs plus the carrying costs

Question

Quizplus · Accepted Answer

The annual relevant carrying costs of inventory consist of incremental costs (the cost of purchasing and holding inventory) plus the opportunity cost of capital (the cost of the money tied up in inventory that could be used for alternate uses). Therefore, option C is the correct choice. Option A is incorrect because it only includes the ordering costs and carrying costs, whereas option B only includes the stockout costs and carrying costs. Option D only includes the incremental costs and carrying costs, but does not consider the opportunity cost of capital.

The Annual Relevant Carrying Costs of Inventory Consists of the Sum