Describe the types of costs associated with carrying inventory.

Heartland Fabrication has entered the commercial market. One of its customer bases is retail outlets purchasing steel racks. Heartland manufactures these racks and stores them in a large warehouse prior to shipment.

The accounting team at Heartland is looking for ways to reduce carrying costs of the inventory, and it needs a long-term plan. Production is fairly constant and inventory levels ebb and flow based on demand. This affects carrying costs and often results in the inability to fulfill and order or having excess inventory.

• Describe the types of costs associated with carrying inventory.
• How might the economic-order-quantity decision model help Heartland plan and control inventory?
• What would be the advantages and disadvantages of a just-in-time inventory system for Heartland?