First 3 photos are for reference, questions are on photo 4.

Objective: To demonstrate how inventory carrying cost is calculated. Information: Inventory carrying cost (ICC) is a major logistics cost that reflects the cost of holding inventory. A unique ICC is usually calculated for each product because products have different raw materials costs, production costs, damage rates and obsolescence rates. In addition, ICC can be calculated for a product at any stage of development because the dollar value of the inventory changes as the product moves through the logistical pipeline (e.g. as a raw material, work-in- process inventory or finished product). This case will focus on the calculation of ICC for a finished product. ICC is usually measured by determining the dollar value of the average amount of inventory in the logistics pipeline and multiplying that dollar value by a corporate ICC percentage which is developed for each product for the year. Basic Formula: Annual ICC S= AXBXC Where Product average inventory (# of units) BS cost per unit ICC % (Specific costs expressed as a % of cost per unit) = Determining A, B & C: Finished product average inventory -1/2 order quantity+ all safety stock. For example, when a warehouse orders and receives shipments of 10 units every 10 days and ships 1 unit per day to the retail store and carries a safety stock of 2 units, the average inventory is 1/2 (10) +2-7 units. A Product cost increases as it is produced and moved. Manufacturers use variable manufacturing cost per unit and retailers use the cost of goods sold to reflect production cost. Both manufacturer and retailer add transportation and handling costs per unit to reflect the cost of moving the product to its storage location. B Application: 1. Using the detailed formula for ICC and the following information, Calculate the f finished product inventory carrying cost for the IBM 586 computer. IBM stores the computers that The warehouse received one computer shipment each quarter this year. Each shipment contained 15,000 computers. The warehouse kept a safety stock of 400 computers. The demand was 15,000 computers per quarter from retailers. it produces in it's only company field warehouse. IBM sold the computers to retailers for $5,000 each. IBM's variable manufacturing costs were $2,800 per computer. IBM's fixed manufacturing costs averaged S500 per computer. The transport cost from plant to warehouse location was $13,200,000 per year. The handling costs to receive and store shipments for the year was $1,200,000. Cost data collected (as a percent of inventory value): -Opportunity cost of capital (32%) -Taking inventory (cycle counting) in warehouse (2%) -State inventory tax (5%) -Insurance on inventory (4%) - Inventory relocation to avoid obsolescence (1%) -inventory obsolescence cost (2%) -Inventory damage in warehouse (396) "Inventory theft in warehouse (4%) Calculation: 53% 2. The current inventory turnover is times per year. Place the annual ICC and inventory turnover calculated for questions 1 and 2 in the Y column of the table below. Using the data provided in question 1 and the table below, fill in the rest of the table by calculating annual ICC and inventory turnover for the other two inventory strategies. Show calculations. 3. 60,000 60,000 Column Computer Sales Units per yea Safety Stock Units 60,000 400 60,000 400 60,000 400 2 shipments per year 4 shipments per year 10 shipments per year of equal size of equal size Shipments Annual Transport Plus Handling Cost of equal size $9,000,000 $14,400,000 S24000,000 Annual ICC s Inventory Turns Principles: As average inventory increases, ICC (increases, decreases, remains constant) and as average inventory decreases, ICC (increases, decreases,remains constant) If annual sales remains constant, as inventory turnover increases, ICC (increases, decreases, remains constant) and as inventory turnover decreases, ICC (increases, decreases, remains constant). Objective: To demonstrate how inventory carrying cost is calculated. Information: Inventory carrying cost (ICC) is a major logistics cost that reflects the cost of holding inventory. A unique ICC is usually calculated for each product because products have different raw materials costs, production costs, damage rates and obsolescence rates. In addition, ICC can be calculated for a product at any stage of development because the dollar value of the inventory changes as the product moves through the logistical pipeline (e.g. as a raw material, work-in- process inventory or finished product). This case will focus on the calculation of ICC for a finished product. ICC is usually measured by determining the dollar value of the average amount of inventory in the logistics pipeline and multiplying that dollar value by a corporate ICC percentage which is developed for each product for the year. Basic Formula: Annual ICC S= AXBXC Where Product average inventory (# of units) BS cost per unit ICC % (Specific costs expressed as a % of cost per unit) = Determining A, B & C: Finished product average inventory -1/2 order quantity+ all safety stock. For example, when a warehouse orders and receives shipments of 10 units every 10 days and ships 1 unit per day to the retail store and carries a safety stock of 2 units, the average inventory is 1/2 (10) +2-7 units. A Product cost increases as it is produced and moved. Manufacturers use variable manufacturing cost per unit and retailers use the cost of goods sold to reflect production cost. Both manufacturer and retailer add transportation and handling costs per unit to reflect the cost of moving the product to its storage location. B Application: 1. Using the detailed formula for ICC and the following information, Calculate the f finished product inventory carrying cost for the IBM 586 computer. IBM stores the computers that The warehouse received one computer shipment each quarter this year. Each shipment contained 15,000 computers. The warehouse kept a safety stock of 400 computers. The demand was 15,000 computers per quarter from retailers. it produces in it's only company field warehouse. IBM sold the computers to retailers for $5,000 each. IBM's variable manufacturing costs were $2,800 per computer. IBM's fixed manufacturing costs averaged S500 per computer. The transport cost from plant to warehouse location was $13,200,000 per year. The handling costs to receive and store shipments for the year was $1,200,000. Cost data collected (as a percent of inventory value): -Opportunity cost of capital (32%) -Taking inventory (cycle counting) in warehouse (2%) -State inventory tax (5%) -Insurance on inventory (4%) - Inventory relocation to avoid obsolescence (1%) -inventory obsolescence cost (2%) -Inventory damage in warehouse (396) "Inventory theft in warehouse (4%) Calculation: 53% 2. The current inventory turnover is times per year. Place the annual ICC and inventory turnover calculated for questions 1 and 2 in the Y column of the table below. Using the data provided in question 1 and the table below, fill in the rest of the table by calculating annual ICC and inventory turnover for the other two inventory strategies. Show calculations. 3. 60,000 60,000 Column Computer Sales Units per yea Safety Stock Units 60,000 400 60,000 400 60,000 400 2 shipments per year 4 shipments per year 10 shipments per year of equal size of equal size Shipments Annual Transport Plus Handling Cost of equal size $9,000,000 $14,400,000 S24000,000 Annual ICC s Inventory Turns Principles: As average inventory increases, ICC (increases, decreases, remains constant) and as average inventory decreases, ICC (increases, decreases,remains constant) If annual sales remains constant, as inventory turnover increases, ICC (increases, decreases, remains constant) and as inventory turnover decreases, ICC (increases, decreases, remains constant)