Which costs are primarily considered when calculating the total cost of inventory management?

The total cost of inventory management is primarily calculated by considering holding, ordering, and management costs. Holding costs refer to the expenses associated with storing unsold goods, which can include warehousing fees, spoilage, and inventory insurance. Ordering costs encompass the expenses incurred in replenishing inventory, such as shipping fees, order processing costs, and the costs of placing orders. Management costs involve the oversight and control required to manage inventory levels effectively, including labor and system costs associated with inventory tracking and repositories.

These costs are crucial for businesses to monitor as they directly impact the overall efficiency and profitability of operations. By managing these three areas, organizations can optimize inventory levels, minimize excess stock, and reduce lost sales due to stockouts, allowing for improved cash flow and resource allocation.

While other choices mention various related costs, they do not capture the comprehensive nature of the main costs associated with inventory management, which traditionally focus on holding, ordering, and management.