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1) Holding costs comprises the cost of capital tied up, warehousing and handling costs,
deterioration, obsolescence, insurance and pilferage.
2) Procuring costs depends on how stock is obtained but will consist of ordering costs
for goods purchased externally, such as clerical costs, telephone charges and delivery costs.
3) The cost for the stock itself, the supplier's price or the direct cost per unit of
production, will also need to be considered when the suppliers offers a discount on
orders for purchases in bulk.
4) Shortage cost may be:
• The loss of a sale and the contribution which could have been earned from
the sale
• The extra cost having to buy an emergency supply stocks at high prices
• The cost of production and sales, where the stock-outs bring an entire
process to a halt.
NatalieR answered the question on June 17, 2022 at 07:32
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