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  • 1.  carrying cost q 2

    Posted 01-05-2016 06:33 PM

    Hi,

    company uses 48,000 gallons of paint per year costing $12 per gallon.

    carrying cost is equal to 20% of the purchase price.

    its inventory at constant rate. The

    lead time is 3 days

    company holds 2,400 gallons as safety stock.

    If the company orders 2,000 gallons of paint per order, what is the cost of carrying inventory?

    answer -

    12 x .2 = 2.4

    2400 x 2.4 = 5760

    1000 x 2.4 = 2400

    = 8160

    my question is where did they get the 1000 for average inventory from?

    Thanks. 

    ------------------------------
    Canada
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  • 2.  RE: carrying cost q 2

    Posted 01-05-2016 11:42 PM

    Hi

     

    1000 is arrived by dividing the 2000 gallons in each order by 2 (average inventory).

     

     

    ------------------------------------------------------
    Krishnanand Indhamath CMA, ACMA, ACPA
    Senior Accountant
    Technomak Energy International
    Sharjah
    United Arab Emirates

    Http://management-accountant.com
    ------------------------------------------------------

     

     




    Original Message


  • 3.  RE: carrying cost q 2

    Posted 01-06-2016 03:03 PM

    Hello,

    Again, is this a rule in the book? I can't seem to find this rule. 

    thanks.

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    Canada

    Original Message


  • 4.  RE: carrying cost q 2

    Posted 01-09-2016 03:46 AM

    hi,

    how to get the average inventory?

    thanks

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    Maria Moncha Marasigan
    Administrative
    Dubai
    United Arab Emirates

    Original Message


  • 5.  RE: carrying cost q 2

    Posted 02-08-2016 11:16 PM

    I will try to explain as far as I understood. Simply put.... the co. either has 2000 units or 0 units.  It places order when inv. becomes 0. then it gets 2000 units. again it uses it till 0 units and orders again. So, on an avg the inv it has is (2000+0) / 2. 

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    Jacob Mathew
    Student

    India

    Original Message


  • 6.  RE: carrying cost q 2

    Posted 02-12-2016 10:33 AM

    Hi, That is a perfectly good explanation of how the 1,000 is calculated. Actually, the average inventory level is 3,400 units and is found as follows. It would include the safety stock:

    High level of inventory = 2,400 safety stock + 2,000 just delivered = 4,400 units.

    Low level of inventory = 2,400 safety stock + 0 = 2,400 units.

    Average level of inventory = (4400 + 2400) / 2 = 3,400 units.

    Then, the carrying costs are $2.40 per unit x 3,400 = $8,160. Notice that this is the same as (2,400 x $2.40) + (1,000 x $2.40).

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    Jeanne David
    Academic
    University of Detroit Mercy
    Farmington Hills MI
    United States

    Original Message