Inventory Item Costs

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  This is one of the basic costs that is associated with your inventory.  When thinking of item level inventory, item cost typically includes the price that you pay to acquire the item as well as any costs that you may incur when purchasing.  Some examples of extra costs that may be incurred as part of your item costs are taxes, duties, fees, packing and even transportation fees.  Unit costs generally change based on the size of your order. 

Example
  For example if an aerospace shop wants to order one item it would likely be more expensive than higher volume orders.  This is because you would need to buy materials, which commonly have minimum order quantities as well as teardown and setup machines for only one item.  When a higher volume of parts is made the materials costs and setup costs can be spread across the higher volume of items.  The same applies to transportation fees.  Shipping one item in a truck is much more expensive for that one item because it must incur the entire truck expenses.  Likewise, shipping many items in a truck allows you to pool or spread the costs across multiple items.  Now that you know what item costs are, we’d like to put your new knowledge to the test. 
Challenge

• In this module you learned that the volume of items can make a cost go up or down.  Why?  Share your thoughts in the comments section below and receive a coupon to one of Lean Strategies International LLC's courses.

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