Question
Benson Manufacturing Company obtains its raw materials from a variety of suppliers. Benson's strategy is to obtain the best price by letting the suppliers know
Benson Manufacturing Company obtains its raw materials from a variety of suppliers. Benson's strategy is to obtain the best price by letting the suppliers know thatcit buys from the lowest bidder. Approximately four years ago, unexpected increases in demand resulted in material shortages. Benson was unable to find the material needed even though it was willing to pay premium prices. Because of the lack of raw materials. Benson was forced to close its manufacturing facility for two weeks. Its president vowed that het company would never again be at the mercy of its suppliers. She immediately ordered her purchasing agent to perpetually maintain a one month supply of raw materials. Compliance with the president's orders resulted in raw material amounting to approximately $1,670,000. Warehouse rental and personal costs to maintain the inventory amounted to $8,700 per month. Benson has a line of credit with a local bank that calls for a 14 percent annual rate of interest. Assume that Benson finances the raw material s inventory with the line of credit.
Based on the information provided, determine the annual holding cost of the raw materials inventory.
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