Calculate transit inventory cost-safety inventory cost

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Reference no: EM132222447

Hamilton Fabricators at Te Rapa orders steel plates from the Te Akau steel plant on a regular basis. An investigation revealed the following details:

Annual demand = 5,000 tons

Cost of steel = $ 2,000 per ton

Current order size = 500 tons, transported by TranzRail

TranzRail transport cost = $100 per ton

Safety inventory carried = 50% of demand during replenishment lead time

Inventory holding cost = 25% of purchase price per year

Replenishment lead time = 5 days

Calculate the transit inventory cost, the safety inventory cost, and the transportation cost on an annual basis (do not just provide the answer, show how you worked through the problem).

Reference no: EM132222447

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