Describe how inventory costs can affect pricing Describe how

Solution

Inventory costs include all the costs associated with the inventory which include -

1. Purchasing cost

2. Inventory holding or storage cost

3. Ordering cost

As the inventory costs are higher, so will be the pricing of the goods and vice-versa. This is because increasing inventory costs reduces the profitability of the firm due to increased costs and hence, the price needs to be increased to cover for the increased costs.