COST ACCOUNTING
INVENTORY AND PRODUCTION MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The costs of obsolescence and costs of insurance that change with the quantity of inventory held.
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The return forgone by investing capital in inventory rather than elsewhere.
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The lost profit on sales forgone as a result of customer dissatisfaction due to unavailability of goods.
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The costs of storage space owned that cannot be used for other profitable purposes when inventories decrease.
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Detailed explanation-1: -Which of the following costs is a relevant inventory stockout cost under EOQ decision model? The costs of obsolescence and costs of insurance that change with the quantity of inventory held.
Detailed explanation-2: -Although we have identified a number of costs associated with inventory decisions in the chapter, only two categories, carrying cost and ordering cost, are considered in the basic EOQ model.
Detailed explanation-3: -The 4 components of carrying costs. Four expense categories make up your inventory carrying value: capital cost, storage cost, inventory service cost, and inventory risk cost.
Detailed explanation-4: -One inventory model that is used to answer both questions is the economic order quantity (EOQ) model. The EOQ model takes all costs into consideration. JIT inventory management attempts to minimize holding costs by not taking possession of inventory until it is needed in the production process.