Backorder Costs

AAA

DEFINITION of 'Backorder Costs'

A cost incurred by a business when it is unable to fill an order and must complete it later. A backorder cost can be discrete, as in the cost to replace a specific piece of inventory, or intangible, such as the effects of poor customer service. Backorder costs are usually computed and displayed on a per-unit basis.

INVESTOPEDIA EXPLAINS 'Backorder Costs'

Backorder costs are important for companies to track, as the relationship between holding costs of inventory and backorder costs will determine whether a company should over- or under-produce. If the carrying cost of inventory is less than backorder costs (this is true in most cases), the company should over-produce and keep an inventory.

RELATED TERMS
  1. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
  2. Inventory

    The raw materials, work-in-process goods and completely finished ...
  3. Demand

    An economic principle that describes a consumer's desire and ...
  4. Inventory Reserve

    An accounting entry that represents a deduction from earnings ...
  5. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  6. patent attorney

    A lawyer with expertise in intellectual property law as it pertains ...
Related Articles
  1. What are the generally accepted accounting ...
    Investing

    What are the generally accepted accounting ...

  2. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  3. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  4. Executing A Swot Analysis
    Investing Basics

    Executing A Swot Analysis

comments powered by Disqus
Hot Definitions
  1. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  2. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  3. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  4. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  5. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  6. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
Trading Center