Calculate the Annual Inventory Costs for the Following Data

question 25

Short Answer

Calculate the annual inventory costs for the following data.
$\begin{array}{ll} \text {Order quantity } & =400\text { units}\\ \text {Annual demand } & =12,500\text { units }\\ \text {Unit purchase cost } &=50\\ \text { Fixed cost of placing an order} &=75\\ \text { Percentage cost of holding one unit in inventory for a year } &=20\%\\\end{array}$

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Definitions:

Inventory Destroyed

Goods that have been damaged or ruined to such an extent that they cannot be sold or used.

Gross Profit Ratio

A profitability ratio calculated as gross profit divided by net sales, indicating the percentage of sales revenue that exceeds the cost of goods sold.

Average Cost

A method for inventory valuation that calculates the cost of goods sold and ending inventory based on the average cost of all items purchased.

Retail Inventory Method

An accounting process used by retailers to estimate inventory value by converting the retail value of inventory to a cost basis, based on the relationship between cost and retail price.