The correct answer is: D. None of the above
Inventory holding costs are the costs associated with storing and carrying inventory. They include costs such as:
- Warehousing costs: These are the costs of renting or owning a warehouse, as well as the costs of heating, cooling, and lighting the warehouse.
- Handling costs: These are the costs of moving inventory in and out of the warehouse, as well as the costs of inspecting and counting inventory.
- Obsolescence costs: These are the costs of inventory that becomes outdated or damaged and cannot be sold.
- Interest costs: These are the costs of borrowing money to finance inventory.
- Insurance costs: These are the costs of insuring inventory against loss or damage.
Material purchase cost, penalty charge for default, and interest on loan are not included in inventory holding costs.
Material purchase cost is the cost of purchasing the materials that go into making a product. This cost is not included in inventory holding costs because it is a one-time cost that is incurred when the materials are purchased, not when they are stored in inventory.
Penalty charge for default is a cost that is incurred if a company fails to meet its financial obligations. This cost is not included in inventory holding costs because it is a cost that is incurred due to the company’s financial performance, not due to the company’s inventory management practices.
Interest on loan is the cost of borrowing money. This cost is not included in inventory holding costs because it is a cost that is incurred due to the company’s financing decisions, not due to the company’s inventory management practices.