How to determine?

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