Question

A bicycle manufacturer purchases bicycle seats from an outside supplier for $22 each. The manufacturer’s inventory of seats turns over 1.2 times per month, and the manufacturer has an annual inventory holding cost of 32 percent. What is the inventory holding cost (in $) for a bicycle seat?

Answer 1

Answer:

$0.48 or 48.7

Explanation:

The following are the steps taken

A Bicycle manufacturer bought bicycle seats from an outside supplier = $22 each

Inventory seats for the manufacturing turns over at =1.2 times per month

The manufacturer annual holding inventory  cost is =32%

Then

(Holding cost = ($22 COGS/1.2 turns) × (32% annual holding)

Therefore

(Holding cost = ($22 COGS/1.2 turns) × (32% annual holding/12 months)

= 48.7 or $0.48

The Inventory holding cost for a bicycle seat is =$0.48