Question

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 per unit for the War Eagle Brand golf ball, to the nearest whole cent? Do not enter a dollar sign in your answer.

Answer 1

The inventory carrying cost or holding cost would include Warehousing and logistic costs, Insurance costs, Spoilage/breakage losses, Obsolete inventory write offs, Materials handling costs, Depreciation costs, Opportunity cost of tied up capital

So the inventory carrying cost per unit = 2+1+1.5+4+0.5+2.5+0.7+1.5=36.5 = 14%