Answer (C) is correct . The cost of carrying a unit of inventory can be calculated as follows: Invoice price $400 Freight and insurance on shipment 20 Per-unit purchase cost $420 Times: cost of capital *25% Opportunity cost $105 Insurance on inventory 15 Per-unit carrying cost $120
Answer (A) is incorrect because The amount of $105 results from excluding the cost of insurance.
Answer (B) is incorrect because The amount of $115 results from excluding the cost of freight and insurance on shipment.
Answer (D) is incorrect because The amount of $420 is the per-unit cost of purchase.
