Waldon Company is considering dropping a product. The firm currently carries inventory valued at $4,500,000. Dropping the product would reduce inventory value to $1,600,000. Accounting records reveal that past warehousing costs were $320,000 when inventory levels were maintained at $1,000,000 and $845,000 when inventory increased to $4,500,000. The firm has several very large bank loans outstanding and pays interest of 12% on these loans.

REQUIRED

Estimate the annual savings in inventory carrying costs if the product was dropped.