Page 99 - F2 - MA Integrated Workbook STUDENT 2018-19

Accounting for materials

Costs of carrying inventory

 Purchase price

 Holding costs

– Opportunity cost
– Insurance

– Deterioration

– Obsolescence
– Stores labour costs

Total annual holding cost = Ch × Q/2

 Ordering costs

– Clerical and administrative expenses

– Transport costs

Total annual ordering cost = Co × D/Q

Total annual cost = PD + (Co × D/Q) + (Ch × Q/2)

 Stock-out costs

– Lost sales

– Reputation damage

– Production stoppages

– Emergency orders

91