Tech Company is a mediumsized consumer electronics retailer

Tech Company is a medium-sized consumer electronics retailer. The company reported $155,000,000 in revenues for 2007 and $110,050,000 in Costs of Goods Sold (COGS). In the same year, Tech Co. held an average of $20,000,000 in inventory.

Inventory cost at Tech Co. is 35 percent per year. What is the per unit inventory cost (in dollars) for an MP3 player sold at $50? Assume that the margin corresponds to the retailer’s average margin.

Solution

Inventory cost is given as 35%

So, Inventory Cost ($) = Average Inventory Price x Inventory cost ratio

= $20,000,000 x 35%

= $ 7,000,000

Number of units = Revenue / Price per unit

= $155,000,000 / $ 50

= 3,100,000 units

So, Inventory cost per unit

= Inventory Cost ($) / Number of units

= $ 7,000,000 / 3,100,000

= $ 2.26 per unit.