Johnson Company had beginning inventory of $1,000,000 and ending inventory of $1,200,000.Johnson has determined inventory carrying cost to be 25 percent.Johnson's inventory carrying cost was:

Question

Quizplus · Accepted Answer

The formula for inventory carrying cost is:

Inventory Carrying Cost = Average Inventory x Inventory Carrying Rate

We can find the average inventory by adding beginning inventory and ending inventory and dividing by 2:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2 
= ($1,000,000 + $1,200,000) / 2 
= $1,100,000

Plugging in the values given:

Inventory Carrying Cost = $1,100,000 x 0.25 
= $275,000

Therefore, the answer is B: $275,000.

Johnson Company Had Beginning Inventory of $1,000,000 and Ending Inventory