In inventory management, which cost is directly dependent on the order quantity when calculating the Cost of Goods Sold under both perpetual and periodic inventory systems?

• A. Purchase cost
• B. Stockout cost
• C. Carrying cost
• D. Ordering cost

Answer: (D)

Verified step by step guidance

1. Understand the concept of ordering cost: Ordering cost refers to the expenses incurred each time an order is placed for inventory. This cost is directly tied to the order quantity because larger or more frequent orders can increase the total ordering cost.
2. Relate ordering cost to inventory systems: In both perpetual and periodic inventory systems, ordering cost is considered when managing inventory levels and calculating the Cost of Goods Sold (COGS). It is not directly part of the COGS calculation but influences inventory management decisions.
3. Differentiate ordering cost from other costs: Purchase cost is the cost of acquiring inventory, stockout cost is the cost of running out of inventory, and carrying cost is the cost of holding inventory. Ordering cost is unique because it depends on the frequency and size of orders placed.
4. Analyze the dependency on order quantity: Ordering cost increases with the number of orders placed, which is influenced by the order quantity. For example, smaller order quantities may lead to more frequent orders, increasing the ordering cost.
5. Apply this understanding to inventory management: When calculating COGS under perpetual or periodic systems, ordering cost is not directly included in the formula but is a critical factor in determining optimal order quantities and inventory policies to minimize total costs.