What Is Ordering Cost?

The definition of an Ordering Cost, as defined by Businessdictionary.com is 'Total expenses incurred when placing an order'.

This includes all the costs of the order but not the actual cost of the goods or services that are being paid for.

The best way to explain this is an example, say when purchasing a new PC for a company. This is good as it has many elements to the ordering cost.

You have to pay the electricity that is needed for the internet and phone call that are used to place the order and the paper that the receipt is printed on. Another cost incurred is the salary of the person that realised that a new PC was needed and got approval from management for the purchase of the item.

The next cost is at the suppliers end, this is for the person that takes the order and gets the item ready for shipping to the purchaser. The next cost is for the labels and wrapping for postage. The packaging is usually not included as this is generally in the cost of the item and included in the price of what is ordered.

A courier or someone to deliver the item and their transport and gas are another ordering cost as this has to be delivered to the person that has ordered the item.

When the item is delivered, the person that ordered it has to unpack and set the computer up. If they are working for a medium to large company, they will generally have to call IT to get them to attach the new PC to the company's server and the Internet. The cost of the phone call to IT and the person that has to set the PC up are also other ordering costs.

There are many ordering costs associated with purchasing items but these are usually small such as paper or already an outgoing e.g. The salary of an admin person to distribute the item.

Ordering costs include all the costs incurred while placing an order and receiving the order, it does not include the actual cost of the goods. These costs include cost of preparing the order or the invoice, the stationery used, salary of the clerks, telephone costs etc. There is a cost involved in placing each order so firms try to avoid ordering for items individually so what they do is that they place the combined order for many items in one order to reduce the costs. Each order has a fixed costs associated with it and it is independent of the number of items in the order. If the ordering cost is C, the total demand or the number of units required is D and the number of items in an order is Q then:
Total Ordering cost = C × D/Q

Ordering cost is a total expenses incurred for placing an order.

Ordering cost is to show from the order to receive a stock in the entire process of pay cost. Such as order processing cost (including office cost, and paperwork costs), freight, insurance premium and stevedore charges, etc. Ordering cost is part and times of order has nothing to do, called the order of the fixed costs, with F1 said. The other part of and times of order relevant, become the order variable costs, each time order variable costs with K said. An order number equal to inventory years demand for every time the Q D and simply illustrated business. The formula is: Ordering cost = F1 + D/Q * K ordering cost occurs with two kind of situations: One kind is due to a purchase order to external suppliers purchase materials and produce cost, such as purchasing material, must write material application form and purchase orders, invoices, payment must deal with to the supplier, gathered into the goods must be checked and sent to the warehouse or processing to the cost of there; Another kind is to internal factory orders because a place costs, such as a group of materials specially to the factory, what happened the cost of paperwork, machine adjustment fee, new adjustment for the first time after the start of production bring waste and other depends on the number of production order or the one-time costs. All these expenses are ordering cost.