Cost of Inventory and Costing Assignment Help

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The term Inventory refers to a list of materials held in the interests of a firm. The list constitutes of the quantity and value of every item. Inventories can be classified into direct inventories and indirect inventories. The inventory account mainly consists of three components- raw materials, work in progress and finished goods. Raw materials refer to the source materials that are used in initial stages of production. Work in progress includes goods that are in the intermediate stage of being transformed from raw materials to finished goods. Finished goods refer to the goods that have gone through all the production and finishing processes and are ready for sale. Clients looking for various topics regarding cost of inventory and costing can refer Cost of Inventory and Costing Assignment Help.
 

Cost of Inventory and its Different Types

Inventory costs are classified into three categories. The three different types of inventory costs explained in Cost of Inventory and Costing Assignment Help are
 

Ordering Costs

It is also known as Setup Costs. Ordering costs is divided into two parts –the cost of the ordering process and inbound logistics costs. The costs which are used to purchase raw materials are included in Ordering Costs.Various examples of ordering costs are given in Cost of Inventory and Costing Assignment Help –stationary, bills, telegrams, clerical salaries, administrative salaries, rent, etc. Ordering cost is dependent on the orders. An increase in the number of orders increases the ordering cost and a decrease in the number of orders decreases the ordering cost. Hence, we can say that ordering cost is directly proportional to orders. It is difficult to produce a rough statement of ordering costs as it includes specific items.
 

 

Carrying Costs

It is also known as Holding Costs. The costs that are involved in holding inventories are included in Carrying costs. The costs included are wages of labourers, deterioration, rent for the floor space, insurance charges, etc. Carrying costs are not expressed as monetary value per order. In order to reduce carrying costs, small quantities of orders are placed by the management. The different types of carrying costs given in Cost of Inventory and Costing Assignment Help are-Capital costs, Storage space costs, Inventory risk costs and Inventory services costs.
 

Stock-Out Costs

It is also known as shortage costs. When stock outs take place, Stock-out costs are sustained. The costs included in stock-out costs are – cost associated with reordering the missing item or expenses regarding the halt of the production line. This is the worst thing that happens in a business. In simple words, an item is out of stock when it is not available.
 

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