Question: I Carry rents trucks for moving and hauling. Each truck costs the company an average of $8,000, and the inventory of trucks varies monthly depending on the number that are rented out. During the first eight months of last year, I Carry had the following ending inventory of trucks on hand:

I Carry uses a 20 percent annual interest rate to represent the cost of capital. Yearly costs of storage amount to 3 percent of the value of each truck, and the cost of liability insurance is 2 percent.

a. Determine the total handling cost incurred by I Carry during the period January to August. Assume for the purposes of your calculation that the holding cost incurred in a month is proportional to the inventory on hand at the end of the month.

b. Assuming that these eight months are representative, estimate the average annual cost of holding trucks.