Use the following scenario to answer the next three questions Finished goods are

Question

Use the following scenario to answer the next three questions Finished goods are to be shipped from a plant inventory to a warehouse inventory some distance away The expected volume to be shipped in a year is 219,000 lb. After manufacturing, the product is worth $50 per lb, and the holding costs are 25% per lb. per year. A trucking firm charges $0.40 per lb. to move the goods from your plant to your warehouse. Payment to the trucking firm is made at the time of delivery to the Warehouse. The trucking firm will ship 36,500 lbs. per shipment and each shipment requires 5 days of transit time 1) What are the total factory inventory holding costs? a. $8,000 b. $14,600 c. $87,600 d. $228,125 e. None of the above 2) What are the total annual trucking transportation costs a. $8,000 b. $14,600 c. $87,600 d. $219,000 e. None of the above 3) What are the in transit inventory costs? a. $1,52!5 b. $6,250 c. $37, 500 d. $500,000 e. None of the above 4) What are the total annual warehouse inventory holding costs? a. $500,000 b. $504,000 c. $229,950 d. $228,125 e. None of the above

Explanation / Answer

Solution 1:

Total volume of Finished Goods = 219,000 lb

Inventory holding cost/lb = 25% of 50 = $12.5 { Given that value of goods are $ 50/lb}

Total Factory inventory holding costs = 12.5* 219,000= $2,737,500

Therefore, corrct option is Option e - None of the Above.

Solution 2:

Trucking transportation cost/lb = $0.40

Total Trucking transportation cost = 0.40*219000 = $ 87,600

Therefore, the correct option is Option C- $87,600

Solution 3:

The in trasit inventory cost will include the product value in transit + the trucking cost = 36000 * ( 50+0.4) = $1,814,400

Therefore, the correct option is Option e - None of the Above

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