Certified Management Accountant Practice Exam

Stockout costs refer to the opportunity costs associated with not having enough inventory to meet customer demand. When a business runs out of stock, it risks losing sales and potentially damaging customer relationships. This cost is particularly significant as it not only represents the lost profit from the missed sales but could also lead to customers opting for competitors, which can have a long-term impact on customer loyalty and market share.

The concept of stockout costs highlights the importance of maintaining an adequate inventory level to ensure that customer orders can always be fulfilled. By understanding stockout costs, management can make informed decisions about inventory management strategies, balancing the costs associated with holding inventory against the risks of running out of stock. Incremental revenue that would have been generated from customer orders that were not fulfilled directly ties into the opportunity cost, making this choice the most appropriate answer.