Question

A company’s holding cost is 12 percent per year. Its annual inventory turns are 8. The company buys an item for $39.

What is the average cost (in $s) to hold each unit of this item in inventory?

Answer 1

The average holding cost per unit for an item with a purchase price of $39, a holding cost of 12 percent per year, and inventory turns 8 times a year is $0.58.

Step-by-step explanation:

The student's question pertains to calculating the average holding cost per unit for an item in inventory. Given that the holding cost is 12 percent per year and the company turns its inventory 8 times a year, we can use this information to find the average cost to hold each unit of the item. The item is purchased for $39.

To calculate the average holding cost per unit, we can use the formula:

Average Holding Cost per Unit = Purchase Price of Item × Holding Cost Percentage / Annual Inventory Turns

For this problem, the calculation would be:

Average Holding Cost per Unit = $39 × 0.12 / 8

After performing the calculation, the average holding cost per unit comes out to:

Average Holding Cost per Unit = $39 × 0.12 / 8 = $0.585

Therefore, the average cost to hold each unit of the item in inventory is $0.58, assuming we round to the nearest cent.