Each unit transported has a direct material cost of $400 and incurs an additional 3% (on the material cost) inbound freight. Each unit also has value added costs, including labor and quality control cost which total $20 per unit. Last, each unit is allocated an overhead of 5% (of the direct material and value added costs). Finally, each unit incurs a delivery cost of $10 per unit. What is corresponding cost incurred per month?

((400 * 0.03 + 400 + 20) * 1.05 + 10) * 80,000 = 37,088,000

With an annual cost of capital of 15% and a safety inventory level of 20,000 units, what is the average monthly TLC for Alpha’s new location?

Total inventory = in-transit + local safety stock = 24,000 + 20,000 = 44,000 units. Unit holding cost per month = ((400 * 0.03 + 400 + 20) * 1.05 + 10) * 0.15 / 12 = $5.795/month Hence, total holding cost per month = 44,000 * $5.795/month = $254,980/mo Hence, TLC per month = $254,980 + $37,088,000 = $37,342,980/mo