Certified Management Accountant 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 430

Which costs are included in the total cost of carrying safety stock?

Only expected stockout costs

Only carrying costs

Carrying cost plus expected stockout cost

The total cost of carrying safety stock encompasses both carrying costs and expected stockout costs, making this choice the most comprehensive. Carrying costs refer to the expenses incurred for storing the inventory, which can include warehousing costs, insurance, depreciation, and opportunity costs associated with the capital tied up in inventory. On the other hand, expected stockout costs represent the potential lost revenue and additional costs incurred when inventory levels do not meet customer demand. By integrating these two components, companies gain a clearer picture of the total expenses related to maintaining safety stock and can make informed decisions about inventory levels and strategies.

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Purchase costs plus ordering costs

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