Summarize the costs of carrying inventory.
What will be an ideal response?
Having inventory on hand costs a small business much more than most people realize. The costs of carrying inventory consist of: (1) the cost of providing and maintaining storage space, such as rent or depreciation, heating, lighting, and security; (2) insurance and taxes; (3) profits lost because money is tied up in inventory (called opportunity cost); (4) theft and destruction; and (5) obsolescence and deterioration of the items. Estimates of the sum of these costs range from 15 percent to more than 100 percent of their value; 20 to 25 percent is the amount most frequently mentioned.
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