Rooney Manufacturing Company obtains its raw materials from a variety of suppliers. Rooney'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. Rooney was unable to find the materials it needed even though it was willing to pay premium prices. Because of the lack of raw materials, Rooney 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 $1.650.000. Warehouse rental and personnel costs to maintain the inventory amounted to $8,200 per month, Rooney has a line of credit with a local bank that calls for a 10 percent annual rate of interest. Assume that Rooney 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. femul intry holding cost
Rooney Manufacturing Company obtains its raw materials from a variety of suppliers. Rooney'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. Rooney was unable to find the materials it needed even though it was willing to pay premium prices. Because of the lack of raw materials, Rooney 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 $1.650.000. Warehouse rental and personnel costs to maintain the inventory amounted to $8,200 per month, Rooney has a line of credit with a local bank that calls for a 10 percent annual rate of interest. Assume that Rooney 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. femul intry holding cost
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Rooney Manufacturing Company obtains its raw materials from a variety of suppliers. Rooney'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. Rooney was unable to find the materials it needed even though it was willing to pay premium prices. Because
of the lack of raw materials, Rooney 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 $1650.000. Warehouse rental and personnel costs to maintain the inventory amounted to $8,200 per month, Rooney
has a line of credit with a local bank that calls for a 10 percent annual rate of interest. Assume that Rooney 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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