Multiple Choice
With respect to total variable costs, which of the following statements best describes the difference between the perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following costs is NOT considered an inventory holding (or carrying) cost?
A
Insurance on inventory
B
Cost of ordering inventory
C
Inventory obsolescence costs
D
Warehouse storage costs
Verified step by step guidance1
Step 1: Understand the concept of inventory holding (or carrying) costs. These are costs incurred to store and maintain inventory, ensuring it is available for use or sale. Examples include insurance, storage, and obsolescence costs.
Step 2: Review each option provided in the question to determine whether it fits the definition of inventory holding costs. For example, insurance on inventory is a holding cost because it protects the inventory from risks like theft or damage.
Step 3: Evaluate 'Inventory obsolescence costs.' These are holding costs because they represent the risk of inventory becoming outdated or unsellable while being stored.
Step 4: Assess 'Warehouse storage costs.' These are holding costs because they involve expenses related to physically storing inventory, such as rent, utilities, and maintenance.
Step 5: Identify 'Cost of ordering inventory.' This is NOT a holding cost because it is associated with the process of acquiring inventory (e.g., administrative costs, shipping fees) rather than storing or maintaining it.
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