---------------------------------- cost includes paperwork for placing order, receiving, inspection, warehousing handling etc.

Ordering Cost Amortization Inventory Carrying Cost Inventory Holding Cost

Ordering Cost

There are two costs involved: One for Ordering (which includes paperwork for placing order, receiving, inspection, warehouse handling etc) and another for holding the inventory or Inventory Carrying Cost (which includes cost of money tied up i.e. interest, space cost, insurance etc).