CPIM Practice Exam

What must be considered in the carrying cost rate?

1. The total volume of inventory handled

2. The cost associated with holding inventory over time

3. The initial purchase cost of goods

4. The frequency of inventory audits

The correct answer is: The cost associated with holding inventory over time

The carrying cost rate is primarily concerned with the ongoing expenses associated with holding inventory over a specific period. This includes costs such as storage fees, insurance, warehousing costs, depreciation, and obsolescence. By focusing on the costs tied directly to maintaining inventory, businesses can make informed decisions regarding their inventory management practices, pricing strategies, and overall financial health. While other factors like the total volume of inventory handled, the initial purchase cost of goods, and the frequency of inventory audits may be important considerations in broader inventory management discussions, they do not directly relate to the carrying cost rate. In essence, the carrying cost rate zeroes in on how much it costs to hold inventory over time, making choice B the correct and most relevant consideration.