Multiple Choice
Which of the following inventory items warrants the use of a single-period inventory model?
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5. Inventory
Inventory Errors
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Which of the following costs is NOT considered an inventory holding (or carrying) cost?
A
Cost of insurance on inventory
B
Cost of purchasing inventory
C
Cost of storage facilities
D
Cost of inventory obsolescence
Verified step by step guidance1
Understand the concept of inventory holding (or carrying) costs. These are costs incurred to store and maintain inventory until it is sold or used. Examples include insurance, storage, and obsolescence costs.
Review each option provided in the problem: 'Cost of insurance on inventory,' 'Cost of purchasing inventory,' 'Cost of storage facilities,' and 'Cost of inventory obsolescence.'
Identify which costs are directly related to holding inventory. Insurance on inventory protects against risks, storage facilities are required to house inventory, and obsolescence refers to the loss in value of inventory over time.
Recognize that the 'Cost of purchasing inventory' is not a holding cost. It is classified as a procurement cost, which is incurred to acquire inventory rather than to store or maintain it.
Conclude that the correct answer is 'Cost of purchasing inventory,' as it does not fall under the category of inventory holding costs.
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