Question

Which of the following represents the fixed costs associated with buying materials from Suppliers, not including the costs of materials? Quality Ordering Carrying Stock-out

Answer 1

Answer:

Ordering Cost

Explanation:

Below each cost is defined along with whether it does/ it does not represent as fixed cost associated with buying materials from suppliers.

Quality Cost  

These represent costs which are determined during the finalization of materials/goods based on the resources utilized for preventing poor quality of goods resulting from internal/external failures. Therefore, whether materials are bought from Supplier or not these cost are not associated with it.

Ordering Cost

These are cost which incur at the time of ordering from supplier. They include such as cost to prepare purchase order and cost of inspection of goods upon receipt. Therefore, they are incurred only when buying materials from Suppliers and are relevant fixed cost.

Carrying Cost

Carrying cost is basically storage cost whether cost being incurred directly or indirectly. This includes rent, utilities, maintenance of warehouse and salaries of individuals overseeing the warehouse. These are fixed cost but not related to buying of materials from Suppliers as they would still be incurred if materials are not bought.

Stock-out Cost

This is opportunity that is lost when customer orders goods more than they are available in company stock. This is not actual cost rather only cost of lost opportunity and therefore, not associated with goods bought from Supplier.

Answer 2

Answer:

Carrying costs

Explanation:

Carrying costs are the costs associated with holding inventory including maintenance, building rent and utilities, storage space, and insurance.