What term describes the percentage of the dollar value of inventory per unit of time, generally yearly, influenced by capital costs and inventory-related costs?

• A. Carrying cost
• B. Cash flow
• C. Cause-and-effect diagram
• D. Capable-2-promise

Answer: (A)

The main idea being tested is the ongoing cost of holding inventory. The term described is the carrying cost (often called holding cost), expressed as a yearly percentage of the inventory’s dollar value. It represents the costs tied up in stock: the capital cost of money invested in inventory plus related expenses such as storage, insurance, taxes, handling, depreciation, and obsolescence. This rate helps quantify how expensive it is to keep inventory on hand, guiding decisions like lot sizes and safety stock.

Other options don’t fit as well: cash flow concerns the timing of cash receipts and payments, not the annual carrying expense as a percentage of inventory value; a cause-and-effect diagram is a quality tool used to identify root causes; capable-to-promise is a forecasting/fulfillment concept for order promising.