Final answer:
Inventory holding costs are best described as a) physical and financial carrying costs, which include both the out-of-pocket expenses for warehousing and implicit costs like the depreciation of goods and opportunity costs.
Step-by-step explanation:
The question of which option best describes inventory holding costs can be answered by looking into the nature of these costs. Inventory holding costs encompass the expenses associated with storing and maintaining a company's inventory. This includes physical and financial carrying costs such as the cost of storage space, utilities, insurance, and security (warehousing costs), as well as the capital costs of the inventory, opportunity costs, depreciation, and potential obsolescence of the goods (implicit costs).
Understanding Inventory Holding Costs
Explicit costs are direct out-of-pocket payments like wages and rent. In contrast, implicit costs refer to the opportunity cost of using resources the company already owns but is not directly paid for, such as the use of an owner's property or their unpaid labor.
In the context of inventory, implicit costs include the depreciation of goods, which is an important factor in the overall holding costs. Therefore, the answer to the quiz question is (a) physical and financial carrying costs, as these encompass both the explicit storage expenses, as well as implicit capital and opportunity costs associated with keeping an inventory over time.