Costs that fall with increases in the level of investment in current assets
What Is Shortage Cost?
The concept of shortage cost depicts that the cost of a company falls with the increase in the level of the investments in the current assets. Current assets of a company are the assets which can be liquidated
within one year. Another concept of shortage cost is that it is the cost which is incurred when an item is out of stock. It is also known as stockout cost in the case. Moreover, the shortage cost can be calculated (in second case) as sales plus the customer goodwill or the lost contribution margin.
within one year. Another concept of shortage cost is that it is the cost which is incurred when an item is out of stock. It is also known as stockout cost in the case. Moreover, the shortage cost can be calculated (in second case) as sales plus the customer goodwill or the lost contribution margin.