13.3 TYPES OF COSTS IN INVENTORY MODELSThe setup cost is inde-pendent of the order(or production batch)size.Companies face a number of costs when they manage inventories. Although the types of costsvary depending on the company and the situation, the following costs are typical.Ordering (or Setup) CostWe have already mentioned the ordering (or setup) cost. This is the fixed cost incurredevery time an order is placed or a batch is produced. The ordering cost is independent ofthe amount ordered or produced. This ordering cost includes the cost of paperwork andbilling each time an order is placed and could include other costs as well, such as paying atruck driver to deliver the order to the company’s warehouse. If the product is producedrather than ordered, this cost can include the cost to set up equipment.
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