Ace the CPIM Exam 2025 – Turbocharge Your Supply Chain Smarts!

To determine the carrying cost of inventory, you can utilize the formula for carrying cost, which is calculated by multiplying the average inventory by the carrying cost rate.

In this scenario, the average inventory is $3 million, and the carrying cost rate is 26%.

Calculating this gives:

Carrying Cost = Average Inventory x Carrying Cost Rate

Carrying Cost = $3,000,000 x 0.26

Carrying Cost = $780,000

This calculation shows that the carrying cost is indeed $780,000, which matches the stated answer. Therefore, this is the correct choice. Carrying costs typically cover expenses associated with holding inventory, such as storage costs, insurance, depreciation, and opportunity costs, making it a crucial aspect of inventory management and financial planning for an organization. The accurate computation reflects this essential financial metric that organizations must monitor to maintain efficiency and manage inventory effectively.