Certified Supply Chain Professional (CSCP) Practice Exam

What do capital costs represent?

1. Insurance costs incurred while holding inventory

2. Returns expected from investments and opportunities

3. Costs related to storing excess inventory

4. Transportation and logistics expenses

The correct answer is: Returns expected from investments and opportunities

Capital costs represent the returns expected from investments and opportunities. These costs are often associated with the investment in assets that a company undertakes to generate a return over time. When a business invests capital in equipment, facilities, or other resources, it expects to earn a return on that investment, reflecting the opportunity cost of using that capital elsewhere. This concept is critical in supply chain management as businesses need to evaluate the cost-effectiveness of their investments and ensure that their capital tied up in assets leads to sufficient returns. Optimizing capital costs can help companies make informed decisions about resource allocation and drive profitability. The other options, while related to inventory and supply chain operations, represent specific expenses or issues rather than the broader concept of expected returns from investments.