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 $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 converstion) 2 month of production
Finished goods 1 month of production
Compute the annual inventory carrying costs for SMY Corporation.