University of Central Florida (UCF) ENT4412 Managing Small Business Finances Final Practice Exam

The shipping fees associated with an increase in the number of orders from a supplier are categorized as order costs. Order costs are expenses incurred every time an order is placed, and they typically include shipping and handling fees, costs of order processing, and any associated administrative costs. Since these fees rise proportionally with the frequency of orders, they are directly related to the ordering process itself, making them a key component of order costs.

On the other hand, set-up costs generally refer to expenses incurred to prepare for production or to process an order before goods are produced or assembled, which is not directly applicable to shipping. Holding costs, also known as carrying costs, relate to storing inventory and the associated expenses, such as warehousing fees, insurance, and depreciation; they don't pertain to the act of ordering. Thus, recognizing shipping fees as order costs aligns with their nature as expenses incurred upon placing orders, reflecting the direct relationship between order frequency and shipping expenses.