A bicycle manufacturer purchases bicycle seats from an outside supplier for $22 each. The manufacturer’s inventory of seats turns over 0.9 times per month, and the manufacturer has an annual inventory holding cost of 32 percent. What is the inventory holding cost (in S) for a bicycle seat?

The inventory holding cost (in S) for a bicycle seat is 32% of the Average Inventory Value. .that would mean that we need to calculate the Average Inventory Value first.

We can do that using the Inventory Turnover formula which is,

Inventory Turnover Ratio = Cost of goods sold / Average inventory value

Making Average inventory value the subject we have,

Average inventory value = Cost of goods sold / Inventory turnover ratio

Since we know the Cost of Goods sold is $22 and the Inventory Turnover is 0.9 times PER MONTH which translates to 10.8 PER YEAR (0.9*12 months) we can then calculate.

Putting in the figures we have,

Average inventory value = Cost of goods sold / Inventory turnover ratio

= 22/10.8

= 2.03703703704

= $2.04

Annual unit inventory holding cost = 32% of Average inventory value

= 0.32 * 2.04

= 0.6528

= $0.65 (2 dp)

$0.65 is the inventory holding cost for a bicycle seat