Final answer:
Inventory carrying costs refer to the total costs associated with storing and managing unsold goods, including the price of the products, shipping, insurance, and storage. These costs affect a company's profitability and can vary with the business cycle.
Step-by-step explanation:
The expenses included in the cost of merchandise inventory, such as the price of goods, shipping and handling costs, transit insurance, and storage costs, are collectively referred to as the inventory carrying costs. These costs are a key component of inventory management and are crucial for businesses to track in order to maintain profitability. It's important for businesses to monitor these costs closely, as they directly impact the company's balance sheet and can fluctuate based on the business cycle. When business is booming and inventory moves quickly, these costs tend to decrease. Conversely, if sales are slower than expected, inventory levels rise, and the associated inventory carrying costs increase, affecting the business's financial health.