Question

Which of the following is defined as costs associated with not having sufficient cash, inventory, or accounts receivable?

1) Opportunity cost
2) Holding cost
3) Shortage cost
4) Carrying cost

Answer 1

Shortage cost refers to the costs associated with not having sufficient cash, inventory, or accounts receivable.

Step-by-step explanation:

The correct answer is 3) Shortage cost.

Shortage cost refers to the costs associated with not having sufficient cash, inventory, or accounts receivable. It includes the costs of lost sales, lost revenue, and potential damage to a company's reputation. As a concept closely related to shortage costs, opportunity cost is a fundamental principle in economics that reflects the cost of not being able to pursue the next best alternative. For instance, if a company cannot invest in new projects or technology due to capital tied up in excessive inventory, the opportunity cost is the foregone benefits those investments could have generated.

For example, if a company does not have enough inventory to meet customer demand, it may lose sales and revenue. Additionally, the company may incur costs associated with rush orders or expedited shipping to replenish its inventory.