What is included in "inventory carrying cost"?

Inventory carrying cost encompasses all expenses incurred while holding inventory, making it a comprehensive term that includes various financial considerations. The correct choice highlights the main components of carrying costs which are crucial in assessing overall inventory management performance.

Storage costs represent one significant part of inventory carrying costs. These expenses encompass rent, utilities, and other overhead costs associated with physically maintaining a warehouse or storage facility.

Depreciation is another critical factor; it accounts for the potential loss of value in inventory over time due to factors like obsolescence, damage, or market shifts. This decline in value must be factored into the overall cost of holding that inventory, as it directly impacts profitability.

By including both storage-related expenses and depreciation in the calculation of inventory carrying costs, businesses can gain a clearer picture of their financial responsibilities and make more informed decisions regarding stock levels and purchasing strategies. This thorough approach aids in optimizing inventory management, ultimately supporting operational efficiency and financial performance.