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i) Purchase cost is the cost charged by the suppliers for the items purchased.
ii) Holding / carrying cost is the cost incurred as a result of having inventory item in the business. e.g.
- Opportunity cost of capital tied up in stock
- Insurance and security cost
- Refrigeration and conditioning
- Ware housing changes.
- Maintenance of machinery
iii) Ordering cost is the cost of bringing stock items into the store. They include loading and off loading charges cost of purchasing department, transport etc.
iv) Stock out cost or shortage cost is the cost incurred as a result of not having inventory items in stock. E.g. production disruption which may lead to lower production, lost discounts cost of speeding up orders and deliveries, lost customer good will.
Wilfykil answered the question on August 5, 2019 at 11:05
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