Which of the following is considered an inventory ordering cost under inventory management systems?

• A. Costs of insuring inventory against loss or damage
• B. Costs of inventory shrinkage due to theft or obsolescence
• C. Costs of storing inventory in a warehouse
• D. Costs incurred to place and receive purchase orders for inventory

Answer: (D)

Verified step by step guidance

1. Understand the concept of inventory ordering costs: These are costs directly associated with placing and receiving purchase orders for inventory. They are part of the broader category of inventory management costs.
2. Differentiate inventory ordering costs from other inventory-related costs: Costs such as insuring inventory, shrinkage due to theft or obsolescence, and storage costs are not considered ordering costs. These fall under carrying costs or other categories.
3. Focus on the correct definition: Inventory ordering costs include activities like administrative expenses for processing purchase orders, communication costs with suppliers, and transportation costs for receiving inventory.
4. Relate the correct answer to the definition: The correct answer, 'Costs incurred to place and receive purchase orders for inventory,' aligns with the definition of inventory ordering costs.
5. Apply this understanding to similar questions: When analyzing inventory management systems, always categorize costs based on their nature—ordering costs, carrying costs, or other operational costs.