ACCA Financial Management (F9) Certification Practice Exam

When calculating holding costs, which variables are used?

1. Discount rate and maintenance cost

2. Annual cost of holding one unit and number of units ordered

3. Annual demand and ordering cost per unit

4. Minimum usage and lead time

The correct answer is: Annual cost of holding one unit and number of units ordered

The calculation of holding costs, often referred to as carrying costs in inventory management, primarily depends on the amount spent to keep inventory in stock over a certain time period. This involves factoring in both the annual cost of holding each unit and the number of units being ordered. The annual cost of holding one unit typically includes expenses like warehousing costs, insurance, depreciation, and any opportunity cost associated with the capital tied up in inventory. By multiplying this cost by the number of units ordered, it gives a clear picture of the total holding costs for the inventory maintained. The other options highlight different factors that do not directly pertain to holding costs. For instance, discount rate and maintenance cost focus on financial aspects unrelated to how inventory is held and managed over a time period. Annual demand and ordering cost per unit are related to ordering costs rather than holding costs. Minimum usage and lead time relate more to supply chain management and logistics, which do not contribute directly to the calculation of holding costs.