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Although you are new to the company, you have been assigned the responsibility of communicating the...

Although you are new to the company, you have been assigned the responsibility of communicating the cost of carrying your company's inventory of War Eagle Brand golf balls to the CEO. You have been provided the facts listed below. The boss wants to know the answer to several questions about the cost of carrying this inventory asap.

  • 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 inventory carrying cost percentage for the War Eagle Brand golf ball, to the nearest whole number? Do not enter a percentage sign in your answer

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Answer #1

Inventory carrying cost percentage

= Storage + Taxes + Inflation + Risk + Pilferage + Service + Cost of Capital + Prime lending rate + Insurance

= 2% + 1% + 4% + 1.5% + 5% + 2.5% + 20% + 3.5% + 1.5%

= 41 %

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