Please explain "Opportiunity cost and Ordering costs"



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Hi Sir,

Could you make me better understand the meaning of "Opportiunity cost and Ordering cots"?

5 Answer(s)


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Opportunity cost is the benefit you forsake by investing your money in a project. Assuming you invest $100mn in a power plant then that money is not available to you to invest in another project B. The potential return from project B is your opportunity cost.

I am not sure what you mean by "Ordering Costs". Is that a term you found in one of our lectures ?

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Inventory costs are basically categorized into three headings:

1.Ordering Cost
2.Carrying Cost
3.Shortage or stock out Cost & Cost of Replenishment


a.Cost of Loss, pilferage, shrinkage and obsolescence etc.
b.Cost of Logistics
c.Sales Discounts, Volume discounts and other related costs.


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1.Ordering Cost
Cost of procurement and inbound logistics costs form a part of Ordering Cost. Ordering Cost is dependant and varies based on two factors - The cost of ordering excess and the Cost of ordering too less.


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2.Carrying Cost
Inventory storage and maintenance involves various types of costs namely:

•Inventory Storage Cost
•Cost of Capital



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