Which of the following costs is a relevant inventory carrying cost under EOQ decision model?
A) The lost contribution margin on future sales forgone as a result of customer dissatisfaction in product quality.
B) The lost contribution margin on sales forgone because of the shortage of inventory.
C) The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.
D) The costs of receiving and inspecting inventory and moving the inventories to the warehouses.

Question

Quizplus · Accepted Answer

This cost is relevant because it is directly related to the amount of inventory held. When inventories increase, the costs of storage space increase as well. This cost cannot be avoided when inventory is held at a certain level, and therefore it must be considered when making EOQ decisions.

Option A is not a relevant inventory carrying cost because it is related to customer satisfaction and future sales potential, not carrying and holding inventory. 
Option B is not a relevant inventory carrying cost because it is related to lost sales, not carrying and holding inventory. 
Option D is not a relevant inventory carrying cost because it is related to the cost of receiving and moving inventory, which is a transaction cost, not a carrying cost.

Which of the Following Costs Is a Relevant Inventory Carrying