MANAGEMENT

Detailed explanation-1: -Ordering costs are the expenses incurred to create and process an order to a supplier. These costs are included in the determination of the economic order quantity for an inventory item.

Detailed explanation-2: -Ordering, holding, and shortage costs make up the three main categories of inventory-related costs.

Detailed explanation-3: -Ordering Costs also known as setup costs which is incurred at the time of placing an order. This costs are related with the preparation of supplier’s order, including the costs of placing an order, inspection costs, documentation costs and other costs associated with an order.

Detailed explanation-4: -Ordering costs are considered expenses related to placing orders for new inventory. Transportation, shipping fees, inspection fees, and other expenses for conveying the order come under it. These costs are generally fixed in nature. These costs are a component in calculating the economic order quantity (EOQ).

Detailed explanation-5: -Examples of order costs include the costs of preparing a requisition, a purchase order, and a receiving ticket, stocking the items when they arrive, processing the supplier’s invoice, and remitting the payment to the supplier.