Inventory Carrying Cost rate

by | Sep 15, 2021 | Homework Help

Question · What is your company’s Inventory Carrying Cost rate? (Ask your Director of Logistics or the CFO.  If that’s not possible, provide an estimation using all 4 categories presented in class.)  Do you think it’s an accurate computation, a good estimate or a not-even-close estimate?  Recommend one action that should be taken to improve the accuracy of this number.Reply to the students response in 150 words and provide 1 referenceStudents responseAn estimation our organization’s Carrying Cost rate:Capital Investment $1,400.00Inventory Service Cost Insurance 0.00 Taxes (N/A) tax exempt 0.00 Storage Cost Warehouse (own, rent) owned Operations cost (labor, utilities, etc) $1,184,544Risk cost(DD200) Covers obsolescence, damage and pilferage $1,200,000 k=Total Carrying cost/Average Value of Inventory held = $1,500,000/$3,784,544 = 37%It is imperative to have an accurate account of carrying costs because it is a critical factor in calculating profit from current inventory, it aids in determining increase or decrease in production in order to maintain a desired balance between income and expenses and since carrying costs are typically 20 – 30 percent of your inventory value, it is an essential cost factor to account analyze. Recognize and consider different inventory management techniques and tools such as online inventory managements systems that accurately tracks and take account of every inventory to minimize carrying costs instead of than relying on manual tracking on excel spreadsheets. This will also provide valuable information regarding accurate demand forecast and ROP to help reduce carrying cost as well.

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