What cost is included in carrying costs associated with supplies inventory?

Carrying costs associated with supplies inventory primarily include expenses related to storing and maintaining that inventory over time. The cost of money is a crucial component of carrying costs because it reflects the opportunity cost of tying up capital in inventory instead of investing it elsewhere. When a company holds inventory, it is essentially investing money that could have earned a return if allocated to different opportunities.

This cost encompasses aspects like interest on loans taken to finance inventory purchases, the cost of capital, or the potential gains from alternative investments that are foregone. Therefore, the cost of money accurately represents the financial burden of holding inventory over time.

In contrast, the other options do not directly pertain to carrying costs. The purchase price relates to the initial acquisition cost of the inventory. Labor costs typically involve expenses tied to processing or managing inventory but are not directly classified as carrying costs. Transportation costs arise from moving the inventory to a storage location but are more aligned with logistics and distribution rather than ongoing carrying costs.