Dear All
While computing EOQ, how we can determine the "Inventory holding cost or %" like 10% or 15% or 20%.
I mean on what basis, we 'ill calculate this %?
and
What factors should be considered?
Pl xplain with an example on urgent basis
Thanks
Kumar Gaurav (Going...to be C.A soon...) (1624 Points)
26 February 2013Dear All
While computing EOQ, how we can determine the "Inventory holding cost or %" like 10% or 15% or 20%.
I mean on what basis, we 'ill calculate this %?
and
What factors should be considered?
Pl xplain with an example on urgent basis
Thanks
Kumar Gaurav
(Going...to be C.A soon...)
(1624 Points)
Replied 27 February 2013
Dear All
I have got the solution of above question from my friend. Here it is:
Inventory Carrying Rate:
This can best be explained by the example below....
1. Add up your annual Inventory Costs:
Example:
$800k = Storage
$400k = Handling
$600k = Obsolescence
$800k = Damage
$600k = Administrative
$200k = Loss (pilferage etc)
$3,400k Total
2. Divide the Inventory Costs by the Average Inventory Value:
Example:
$3,400k / $34,000k = 10%
3. Add up your:
9% = Opportunity Cost of Capital (the return you could reasonably expect if you used the money elsewhere)
4% = Insurance
6% = Taxes
19%
4. Add your percentages: 10% + 19% = 29%
Your Inventory Carrying Rate = 29%
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Inventory Carrying Costs:
Inventory Carrying Cost = Inventory Carrying Rate (see above) X Average Inventory Value
Example: $9,860,000 = 29% X $34,000,000
GSTR 9 and 9C for FY 23-24 as amended by Notification 12/2024 dated 10th July 2024(with recording)
CAclubindia
