Question

A local bookstore turns over its inventory once every two months. The bookstore’s annual cost of holding inventory is 31%. (Round your answer to 2 decimal places.) What is the inventory holding cost (in $) for a book that the bookstore purchases for $8 and sells for $15?

Answer 1

Bookstore’s annual cost of holding inventory is 31%

Every two months, the bookstore turns over its inventory which means the turn over happens 6 times a year.

Which means,

Annual holding cost as % of Cost of goods sold =31%/6= %5.1667

We have to calculate inventory holding cost for a book that costs $8.

Note : we don't need to use the selling price, since the question is about calculating cost.

Now, use the given and above calculated data :

Inventory holding cost for a book = cost of a book * cost of holding inventory per year (in % of COGS)

Inventory holding cost for a book = $8*5.1667%= $0.41