Final answer:
Inventory holding costs usually amount to about 15-40% of the unit value per year, affecting a firm's profitability and operational efficiency. For a product priced at $25 per unit, annual holding costs could be $3.75 to $10 per unit. Option b) is correct answer.
Step-by-step explanation:
The question pertains to the range of inventory holding costs as a percentage of the unit value per year. Inventory holding costs are an essential factor in overall inventory management and can significantly influence the profitability and operational efficiency of a business. These costs typically include expenses related to storage, handling, insurance, and spoilage.
Industry benchmarks suggest that inventory holding costs usually amount to about 15-40% of the unit value per year. This range can vary based on a variety of factors such as the type of product, the industry, and market conditions. Accurate identification and management of these costs are vital for cost control and pricing strategies.
As an example, if we consider a product with a unit price of $25, and apply the benchmark percentage range, the annual holding cost per unit could range from $3.75 to $10.
On a larger scale, if a company held an inventory whose total value was, say, $27,654.92, the corresponding holding costs for the year could range from $4,148.24 to $11,061.97. Monitoring and minimizing these costs can potentially increase profits or mitigate losses for a firm. For instance, in a scenario where total revenues are less than total costs, reducing inventory holding costs may help alleviate some losses.