You company needs to ship large piece of construction equipment which costs about $500,000 to a customer across the country.Shipping by rail costs $3,000 and will take 8 days.Your company uses 20 % to determine the annual inventory carrying cost.What are the approximate total costs of shipping and in-transit inventory?

Question

Quizplus · Accepted Answer

Shipping cost by rail = $3,000

In-transit inventory cost = (20% of equipment cost) x (time in transit/365) x equipment cost
= (0.20 x $500,000) x (8/365) x $500,000
= $5,479.45

Total cost = $3,000 + $5,479.45 = $8,479.45 ≈ $5,192 (rounded to nearest dollar)

Therefore, the best choice is C.

You Company Needs to Ship Large Piece of Construction Equipment