Question

Stationery Supplies is considering installing an inventory control system in its store in Provo, Utah. The store carries about 1,400 different inventory items and has annual gross sales of about $80,000. The inventory control system would cost $12,500 to install and about $2,000 per year in additional supplies, time, and maintenance. If the savings to the store from the system can be represented as a fixed percentage of annual sales, what would that p

Answer 1

Answer:

5.63%

Explanation:

Missing word "have to be in order for the system to pay for itself in five years or less?"

Total cost = Installation cost + Holding cost

Total cost = 12500 + (2000*5)

Total cost = $22,500

Sales * Saving rate * Number of years = Total cost

80,000 * S * 5 = $22,500

S = $22,500/$400,000

S = 0.05625

S = 5.63%

Thus, it is required for the company to have 5.62% of saving rate per year to pay for the system.