Inventory can be termed as stock on hand at a given point of time which may be held for the purpose of later sell.
It may include raw material, work in process, semifinished or sub assembly and final product.
Inventory control is used to manage inventory in such a manner that day to day working run smoothly without any delay but at the minimum cost.
Purchasing Cost (P.C.)
It is the cost of purchasing inventory.
Ordering Cost (O.C.)
It is the cost when purchased from outside, and it is bringing into inventory within the system.
It includes cost of tender, processing cost, inspection cost etc.
Set-up Cost (S.C)
When the inventory is produced internally, the cost associated with bringing shut down production system again into the starting position of the industry.
It includes maintenance cost, cost of bringing raw material, etc.
Holding Cost (H.C) or Carrying Cost
It is the cost associated with storing, keeping, and maintaining inventory within the production system.
H.C=Average inventory for a period×(Holding Cost)/(Unit×Unit time)
Shortage Cost (S.C)
The cost associated with the loss incurred by stock out
H.C=Average no. of unit short×(Shortage Cost)/(Unit×Unit time)
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