What are the expenses associated with carrying inventory called?

The expenses associated with carrying inventory are referred to as inventory holding costs. These costs encompass several factors related to maintaining inventory over a certain period. They typically include expenses like warehousing, insurance, depreciation, spoilage, and the opportunity cost of the capital tied up in the inventory.

Holding costs are crucial for businesses as they influence inventory management decisions and overall profitability. By effectively managing these costs, organizations can optimize their inventory levels and improve cash flow, ensuring that resources are not wasted on excess stock that incurs unnecessary expenses.

Other options represent different aspects of inventory management. Inventory ordering costs relate to the expenses incurred when placing orders for inventory, such as procurement costs or transportation fees associated with receiving new stock. Reorder costs are specific to the expenses involved in triggering a reorder of inventory, often calculated to maintain optimal stock levels. Shipping costs pertain to the logistics of transporting goods either to or from the organization, which is separate from holding costs.