The next three questions are based on the following information: Demand for an item is 1000 units per year. A processing fee of $10 will be charged for each order placed. The purchasing cost of the item is $20. The annual cost to carry an item in inventory is 20% of the item costs. What is the unit inventory holding cost

$4.00

Explanation:

The cost of purchasing 1000 units per year is computed thus:

the annual cost of purchase=annual demand*cost per unit

annual demand=1000

cost per unit=$20

the annual cost of purchase=1,000*$20

the annual cost of purchase=$20,000

The cost of carrying or holding the inventory for one year is 20% of cost of purchase

Annual holding cost=20%*$20,000

Annual holding cost=$4,000

the unit inventory holding cost=annual holding cost/annual demand

the unit inventory holding cost=$4,000/1000

the unit inventory holding cost=$4.00

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