Certified Supply Chain Professional (CSCP) Practice Exam

Carrying costs are calculated as which of the following?

1. A fixed amount per unit of inventory

2. A percentage of the dollar value of inventory per unit of time

3. The total value of inventory held

4. The average order cost

The correct answer is: A percentage of the dollar value of inventory per unit of time

Carrying costs, also known as holding costs, are typically expressed as a percentage of the dollar value of inventory held over a specific period, usually a year. This valuation encompasses various expenses associated with storing inventory, such as warehousing fees, insurance, depreciation, obsolescence, and opportunity costs of capital. By calculating carrying costs as a percentage of the inventory's value, businesses can manage and evaluate their inventory levels more effectively in relation to their total asset utilization. The other options do not accurately reflect how carrying costs are generally computed. A fixed cost per unit does not account for fluctuations in inventory value. The total value of inventory is a relevant figure, but it does not capture the ongoing costs associated with holding that inventory over time. The average order cost pertains to the expenses incurred during the ordering process, which is different from the costs associated with maintaining inventory on hand. Thus, the percentage-based approach aligns best with conventional practices in supply chain management.