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Purchase price per unit $480
Annual demand 4000 units
Supplier delivery costs $10 per order
Chief buyer’s salary $30,000 per annum
Total number of orders placed 1000 units per annum
Annual storage cost $2 per unit
Cost of capital 10% per annumQuestion: Why cost of holding = $2 + 10% of purchase price = $50 per unit?
The $2 is the cost of storing the material. The 10% of purchase price is the interest cost of the money tied up in inventory.
The total holding cost is the total of the two.Have you watched my free lectures on inventory control? The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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