CPIM Practice Exam

Based on the previous question, what is the annual inventory carrying cost for the same item?

1. $375

2. $525

3. $720

4. $1,440

The correct answer is: $720

To determine the annual inventory carrying cost for an item, you typically consider factors such as purchase cost, holding cost rate, and average inventory levels. The calculation often involves using the formula: Annual Carrying Cost = Average Inventory x Carrying Cost per Unit In this context, the choice of $720 as the carrying cost may align with specific calculations that take into account these variables. For example, if the average inventory on hand is established and multiplied by the carrying cost rate or per unit cost derived from previous parts of the analysis, resulting figures that total $720 would confirm the answer. In broader practice, the calculated carrying costs reflect not just the direct costs of storing inventory but also factors like depreciation, insurance, and opportunity costs associated with the capital tied up in inventory. This comprehensive view of carrying costs usually points to why $720 is a relevant choice, particularly if it was derived from either a price per item multiplied by the average stock balance or a specified cost percentage applied to total inventory values. The other choices could represent alternative calculations or variables but do not align with the methods that yield an annual carrying cost of $720, suggesting they either understate or overstate the associated costs with inventory carrying.