Herman always carries an inventory of between 60000 and 8000

Herman always carries an inventory of between $60,000 and $80,000 at his store, Herman\'s military Antiques. His annual costs for carrying this inventory are 4% for storage, 6% for insurance, 3% for taxes, and 12% interest. What is the greatest possible carrying cost for Herman\'s inventory?

Solution

As given Herman always carries an inventory of between $60,000 and $80,000 so we can say that minimum inventory is $60,000 and maximum inventory is $80,000

and,

His annual costs for carrying this inventory are 4% for storage, 6% for insurance, 3% for taxes, and 12% interest.

we need to find the greatest possible carrying cost for Herman\'s inventory

so we need to assume the maximum inventory so maximum inventory given is $80,000

annual insurance cost for carrying inventory is 6% that is 6% of $80,000

insurance cost = $80,000 * 0.06 = $4800

annual taxes cost for carrying inventory is 3% that is 3% of $80,000

taxes cost = $80,000 * 0.03 = $2400

annual interest cost for carrying inventory is 12% that is 12% of $80,000

interest cost = $80,000 * 0.12 = $9600

so greatest carrying cost for inventory = storage cost + insurance cost + taxes cost + interest cost

greatest carrying cost for inventory = $3200 + $4800 + $2400 + $9600

greatest carrying cost for inventory = $20000

annual storage cost for carrying inventory is 4% that is 4% of $80,000

storage cost = $80,000 * 0.04 = $3200