Natalie's Cabinets makes cabinets at an average cost of $2,000. Last year, Natalie sold 5,000 units of the cabinets and had an annual turnover rate of four times. Natalie has estimated her inventory carrying cost to be 25 percent. What was Natalie's annual inventory carrying cost?
A. $625,000
B. $250,000
C. $312,500
D. $125,000
A. $625,000
Explanation:
Sales = $2,000 × 5,000 units = $10,000,000. With a turnover rate of four times, average inventory = $1,000,000/4 = $2,500,000. Inventory carrying cost for the year = $2,500,000 × .25 = $625,000.
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