Inventory carrying costs SMY Corporation produces 60,000 videophones per year. The company estimates its direct material costs for the videophone to be $300 per unit and its conversion (direct labor plus support) costs to be$400 per unit. Annual inventory carrying costs, not included in these costs, are estimated to be 10%. SMY’s average inventory levels are estimated as follows:
Direct material |
2 months of production |
Work in process (100% complete for materials and 50% for conversion) |
2 months of production |
Finished goods |
1 month of production |
Compute the annual inventory carrying costs for SMY Corporation.