Question

• Average inventory = 10,000 units
• Peak inventory (April) = 24,000 units
• Low inventory (October) = 5,000 units
• Storage = 2%
• Taxes = 1%
• Inflation = 4%
• Risk = 1.5%
• Pilferage = .5%
• Service = 2.5%
• Cost of capital = 20%
• Prime lending rate = 3.5%
• Insurance = 1.5%
• Cost of one unit = $5.00
• Lead-time = 5 days
• Order cost = $250

What is the annual inventory carrying cost for the War Eagle Brand golf ball, to the nearest whole dollar? Do not enter a dollar sign in your answer.

Answer 1

Annual inventory Carrying Cost = Average Inventory*Carrying cost

Average inventory = 10,000

Carrying cost = Storage*Cost of one unit = 5*0.02 = $0.1

Annual inventory Carrying Cost = 10,000*0.1 = 1,000