Firstly, ordering costs are the costs of running the procurement departments. These include wages, payroll taxes, and benefits. Secondly, the holding costs include the cost of space, money, and obsolescence. The room cost consists of the expenses incurred when holding the goods in the warehouse, such as insurance, storage, handling equipment, warehouse employees, utilities, depreciation, and insurance.

The cost of money includes the interest costs attained when paying for the inventory. The cost of obsolescence is arrived at when some inventory items are damaged or are sold at a reduced price. Thirdly, the administrative costs are incurred when the wages of the accounting department compile the inventory costs of the sold goods.