Question

What is an opportunity cost related to inventory carrying costs?

What is an opportunity cost related to inventory carrying costs?

Homework Answers

Answer #1

Opportunity cost is the cost of alternative forgone by not pursuing it. Inventory carrying cost is the cost incurred for carrying inventory. Inventory is part of working capital. Hence a firm to finance its working capital may borrow the funds from banks or may arrange it through any short term financing like notes payable, etc or can deploy internally generated funds also. If Inventory was not carried by firm the firm could have invested the money in short term investments to generate additional returns. Hence the opportunity cost related to inventory carrying cost is the returns the firms could have generated by investing the money in other alternative investment opportunities available. Alternatively the opportunity cost can also be the cost of borrowing which can be avoided by not carrying inventory and incurring carrying cost.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Question 3 EOQ, ORDERING COST, CARRYING COST, AND TOTAL INVENTORY RELATED COST (LO 3) Franklin Company...
Question 3 EOQ, ORDERING COST, CARRYING COST, AND TOTAL INVENTORY RELATED COST (LO 3) Franklin Company purchases 4,500 units of Widgelets each year in lots of 500 units per order. cost of placing one order is $22, and the cost of carrying one unit of product in inventory for a year is $8.80. Required: 1 What is the EOQ for Widgelets? 2 How many orders for Widgelets will Franklin place per year under the EOQ policy? 3 What is the...
What is a common rule of thumb used to calculate inventory carrying costs? Give an example...
What is a common rule of thumb used to calculate inventory carrying costs? Give an example of its use
Economists tell us that the true cost of a decision is opportunity cost. What is opportunity...
Economists tell us that the true cost of a decision is opportunity cost. What is opportunity cost? What is the difference between opportunity cost and money cost? How are the two related? Why is opportunity cost considered as the true cost of a decision?
In aggregate production planning, a demand-chasing production plan a. Maximize both inventory-related costs and labor-related costs...
In aggregate production planning, a demand-chasing production plan a. Maximize both inventory-related costs and labor-related costs b. Minimize Inventory-related costs and maximize labor-related costs c. Minimize both inventory-related costs and labor-related costs d. Not enough information given to answer this question
What are opportunity costs in general? What are the opportunity costs for entrepreneurs?
What are opportunity costs in general? What are the opportunity costs for entrepreneurs?
What is opportunity cost? Explain a situation in which two people would have different opportunity costs...
What is opportunity cost? Explain a situation in which two people would have different opportunity costs for engaging in the same action.
What is opportunity cost? Explain a situation in which two people would have different opportunity costs...
What is opportunity cost? Explain a situation in which two people would have different opportunity costs when engaging in the same action.
7. The costs of carrying inventory include all of the following except: a)Ordering costs. b)Cost of...
7. The costs of carrying inventory include all of the following except: a)Ordering costs. b)Cost of warehouse space. c)Insurance and handling costs. d)Interest on funds tied up in inventory. e)None of the above. 8. Once the break-even point is reached: a)The contribution margin ratio begins to decrease. b)The variable expenses will remain constant in total. c)The total contribution margin changes from negative to positive. d)The net operating income will increase by the unit contribution margin for each additional item sold....
Inventory carrying values on the balance sheet are reported at the lower of cost or market....
Inventory carrying values on the balance sheet are reported at the lower of cost or market. In your opinion, is this the best rationale? When you think of inventory value, which is the first method that comes to mind- what it cost you or what you could sell it for?
Explain Opportunity costs. Give a comprehensive example of the opportunity cost of a decision.
Explain Opportunity costs. Give a comprehensive example of the opportunity cost of a decision.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT