Insurance is a carrying cost of inventory.
The carrying costs of inventory include storing the inventory, insuring and securing it, paying inventory taxes on it, the depreciation or rent on inventory storage facilities, obsolescence and spoilage of inventory, and the opportunity cost of the inventory investment, or the lost interest for investing cash in inventory instead of in some other longer-term investment that would return dividends or interest. The way shipping costs are classified depends on whether they are incoming shipping costs (shipping costs to receive the inventory from the supplier) or outgoing shipping costs (shipping costs to send the product to the customers who have purchased it). Incoming shipping costs are product costs and they are included in inventory along with the cost of the items. Outgoing shipping costs are selling costs and are period costs. But neither incoming nor outgoing shipping costs are classified as inventory carrying costs.
Storage costs are carrying costs of inventory.
Opportunity costs are inventory carrying costs. The opportunity cost of inventory is the cost of capital, or lost interest, for investing cash in inventory instead of in some other longer-term investment that would return dividends or interest.
|
