Problem 10-28A (Algo) Using JIT to reduce inventory holding costs LO 10-6 Adams Manufacturing Company obtains its raw materials from a variety of suppliers. Adams's strategy is to obtain the best price by letting the suppliers know that it buys from the lowest bidder. Approximately four years ago, unexpected increases in demand resulted in materials shortages. Adams was unable to find the materials it needed even though it was willing to pay premium prices. Because of the lack of raw materials, Adams was forced to close its manufacturing facility for two weeks. Its president vowed that her company would never again be at the mercy of its suppliers. She immediately ordered her purchasing agent to perpetually maintain a one- month supply of raw materials. Compliance with the president's orders resulted in a raw materials inventory amounting to approximately $1,760,000. Warehouse rental and personnel costs to maintain the inventory amounted to $8,300 per month. Adams has a line of credit with a local bank that calls for a 15 percent annual rate of interest. Assume that Adams finances the raw materials inventory with the line of credit. Required Based on the information provided, determine the annual holding cost of the raw materials inventory. Annual inventory holding cost
Problem 10-28A (Algo) Using JIT to reduce inventory holding costs LO 10-6 Adams Manufacturing Company obtains its raw materials from a variety of suppliers. Adams's strategy is to obtain the best price by letting the suppliers know that it buys from the lowest bidder. Approximately four years ago, unexpected increases in demand resulted in materials shortages. Adams was unable to find the materials it needed even though it was willing to pay premium prices. Because of the lack of raw materials, Adams was forced to close its manufacturing facility for two weeks. Its president vowed that her company would never again be at the mercy of its suppliers. She immediately ordered her purchasing agent to perpetually maintain a one- month supply of raw materials. Compliance with the president's orders resulted in a raw materials inventory amounting to approximately $1,760,000. Warehouse rental and personnel costs to maintain the inventory amounted to $8,300 per month. Adams has a line of credit with a local bank that calls for a 15 percent annual rate of interest. Assume that Adams finances the raw materials inventory with the line of credit. Required Based on the information provided, determine the annual holding cost of the raw materials inventory. Annual inventory holding cost
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 10-28A (Algo) Using JIT to reduce inventory holding costs LO 10-6
Adams Manufacturing Company obtains its raw materials from a variety of suppliers. Adams's strategy is to obtain the best price by
letting the suppliers know that it buys from the lowest bidder. Approximately four years ago, unexpected increases in demand resulted
in materials shortages. Adams was unable to find the materials it needed even though it was willing to pay premium prices. Because of
the lack of raw materials, Adams was forced to close its manufacturing facility for two weeks. Its president vowed that her company
would never again be at the mercy of its suppliers. She immediately ordered her purchasing agent to perpetually maintain a one-
month supply of raw materials. Compliance with the president's orders resulted in a raw materials inventory amounting to
approximately $1,760,000. Warehouse rental and personnel costs to maintain the inventory amounted to $8,300 per month. Adams
has a line of credit with a local bank that calls for a 15 percent annual rate of interest. Assume that Adams finances the raw materials
inventory with the line of credit.
Required
Based on the information provided, determine the annual holding cost of the raw materials inventory.
Annual inventory holding cost
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