Natalie's Cabinets makes cabinets at an average cost of $2,000.Last year,Natalie sold 5,000 units of the cabinets and had an annual turnover rate of four times.Natalie has estimated her inventory carrying cost to be 25 percent.What was Natalie's annual inventory carrying cost?

Question

Quizplus · Accepted Answer

Natalie's annual inventory carrying cost is 25% of the average inventory value. The average inventory value is half of the annual sales value, which is 5,000 units * $2,000/unit * 4 (turnover rate) = $40,000,000. Therefore, the annual inventory carrying cost is $40,000,000 * 25% = $10,000,000.

Natalie's Cabinets Makes Cabinets at an Average Cost of $2,000