Stock Out and Setup Cost

Topics: Inventory, Manufacturing, Assembly line Pages: 2 (291 words) Published: August 16, 2010
Stock out cost
Economic consequences of not being able to meet an internal or external demand from the current inventory. Such costs consist of internal costs (delays, labor time wastage, lost production, etc.) and external costs (loss of profit from lost sales, and loss of future profit due to loss of goodwill). Also called shortages costs.

The cost associated with being unable to draw on a stock of raw material, work-in-progress or finished goods inventory (loss of sales, profits and goodwill, and also production dislocation).

Cost incurred to a firm when current inventory is exhausted for one or more items. Lost sales revenue costs are incurred when the firm is unable to meet current orders because of a stockout condition.

Set up cost

Expenses incurred in setting up a machine, work center, or assembly line, to switch from one production job to the next.

Setup cost is a classification of business expense that usually has to do with all costs associated with starting a new product or service line, or even initiating a new business of some type. The actual setup costs include any type of expense associated with the venture, ranging from research and development expenses all the way through to the creation of the production line. Businesses tend to look closely at the actual cost of setup involved with any project to ensure the venture has the potential to recover the costs and become profitable within a reasonable period of time.

inventory cost
   [pic]Cost of holding goods in stock. Expressed usually as a percentage of the inventory value, it includes capital, warehousing, depreciation, insurance, taxation, obsolescence, and shrinkage costs.

What Does Carrying Cost Of Inventory Mean?
The cost of maintaining inventory in a company's warehouse
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