The following data refer to various annual costs relating to the inventory of a single-product company that requires 10,000 units per year: Cost per unit Order cost P 0

Accounting Jan 20, 2021

The following data refer to various annual costs relating to the inventory of a single-product company that requires 10,000 units per year: Cost per unit Order cost P 0.50 Transportation-in on purchases 1.80 Storage 1.60 Insurance 1.00 Total per year P8,000 Interest that could have been earned on alternate investment of funds What is the annual carrying cost per unit?

Expert Solution

Carrying cost is equal to the cost of holding the inventory.

Carrying cost per unit = Storage cost + Insurance cost + (Interest / Units)

= P1.60 + P1.00 + (P8,000 / 10,000)

= P1.60 + P1.00 + P0.80

= P3.40

Annual carrying cost per unit = P3.40

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