Problem: I Carry rent 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 8 months of last year, I Carry had the following ending inventory of trucks on hand:
|
MONTH
|
NUMBER OF TRUCKS
|
MONTH
|
NUMBER OF TRUCKS
|
|
January
|
26
|
May
|
13
|
|
February
|
38
|
June
|
9
|
|
March
|
31
|
July
|
16
|
|
April
|
22
|
August
|
5
|
I Carry use 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.
Q1. 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.
Q2. Assuming that these 8 months are representative, estimate the average annual cost of holding trucks.