Trade · 6 pages · 12 min
How inventory is a cost
Goods held for later sale tie up cash and require space, handling, and protection while they sit.
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From the opening
Inventory is goods that have been bought or made and have not yet been sold or used up. Holding that stock costs something because the cash spent on it is unavailable for other uses, and because the goods take space and can spoil, break, or fall out of demand. The opening covers cash stays tied up in goods, space and handling have a price, and spoilage and fashion add further loss.
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Inside
- Cash stays tied up in goods
- Space and handling have a price
- Spoilage and fashion add further loss
- Avoided shortages sit beside that cost
- Where the idea stops applying
- A distinction worth keeping
Sources
- Inventory holding cost
- Opportunity cost of capital tied in stock