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Trucking Company Inventory magement: carrying cost,

1) A trucking company maintains an inventory of trucks that varies monthly. The ending inventory of trucks during the first 8 months of the year (January to August) were 26, 38, 31, 22, 13, 9, 16, 5, respectively. The monthly inventory holding cost is proportional to the monthly ending inventory.

Trucks incur the following costs
? Each truck costs the company $8,000.
? Interest rate on the cost of capital is 20% per annum (annually).
? Each truck incurs a storage cost of 3% per annum of the truck cost.
? Each truck incurs a liability insurance cost of 2% per annum of the truck cost.

Answer the following questions:
1.1) What is the monthly carrying cost per truck?
1.2) What is the total carrying cost incurred by the company over the 8 months (January to August)?
1.3) What is the estimated average annual holding cost?

Solution Preview

1.1. Monthly Carrying cost per truck include following cost:
Interest cost on locked in capital ...

Solution Summary

This post explains how to calculate the carrying costs for the inventory and hence improve the understanding of inventory management.