Estimate the average annual cost of holding trucks

Assignment Help Management Theories

Reference no: EM131463218

Question: I Carry rents trucks for moving and hauling. Each truck costs the company an average of $8,000, and the inventory of trucks varies monthly depending on the number that are rented out. During the first eight months of last year, I Carry had the following ending inventory of trucks on hand:

I Carry uses a 20 percent annual interest rate to represent the cost of capital. Yearly costs of storage amount to 3 percent of the value of each truck, and the cost of liability insurance is 2 percent.

a. Determine the total handling cost incurred by I Carry during the period January to August. Assume for the purposes of your calculation that the holding cost incurred in a month is proportional to the inventory on hand at the end of the month.

b. Assuming that these eight months are representative, estimate the average annual cost of holding trucks.

Reference no: EM131463218

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