Question

While calculating the Economic Order Quantity, it is necessary that a company should know how much the 'Inventory Carrying Cost' is and what does it include. From the following, identify the item which is not included in 'Inventory Carrying Cost':

• A. Interest
• B. Paperwork for placing order
• C. Space cost
• D. Insurance

Hint:

$$\text{\textbf{Carrying Costs} (Holding)} = \text{Storage, Insurance, Interest, Obsolescence}$$ $$\text{\textbf{Ordering Costs} (Transaction)} = \text{Paperwork, Postage, Shipping, Receiving Inspection}$$ Carrying costs increase as inventory volumes grow, whereas ordering costs decrease as order sizes grow because fewer total orders are placed.

Answer 1

The Correct Option is B