Detailed Answer
Answer (D) is correct. Paint’s per-gallon carrying cost is $2.40 ($12 purchase price per gallon × 20% carrying cost). The cost of carrying safety stock is $5,760 (2,400 gallons × $2.40), and the cost of carrying average inventory is $2,400 (1,000 gallons × $2.40). Thus, total inventory carrying cost is $8,160 ($5,760 + $2,400).