Solved Problem 11.1 Jack\'s Pottery Outlet has: Total end-of-year assets S5 mill

Question

Solved Problem 11.1 Jack's Pottery Outlet has: Total end-of-year assets S5 million First-of-the-year inventory $375,000 Year-end inventory S325,000 Annual cost of goods sold-$7 million To evaluate supply chain performance: Average inventory (First-of-the-year inventory+ year- end inventory)/2 (S375,000+S325,000)/2 -$350,000 1. Percentage invested in inventory-(Total inventory investment/Total assets) x 100 (350,000/5,000,000) x 100- 7% Jack's Pottery has 7% of its assets invested in inventory 2. Inventory turnover -Cost of goods sold/Inventory investment Inventory turnover is 20. 3. Weeks of supply Inventory investment/(Annual cost of = 7,000,000/350,000 = 20 goods sold/52 weeks) -350,000(7,000,000/52) = 2.6 Weeks of supply is 2.6. Example Problem 11.11 Baker Mfg Inc. (see table 11.8) wishes to compare its inventory to those of industry leaders, who have turnover of about 13 times per year and 8% of their assets invested in inventory Baker Mfg Inc. Net revenae $27,500 Cost of sales $21,500 Inventory 1250 Total assets $16,600 a. Inventory turnover Cost of goods sold/Inventory 21500/1250-17.2 Inventory turnover is 17.2. b. Percentage invested in inventory (Total inventory investment/Total assets) x 100 (1250/16600) x 100 7,53% Baker has 7.53% of its assets invested in inventory Baker is doing better than the industry. It has a turnover of 17.2 versus 13 for the industry and only 7.5% of its assets invested in inventory versus 8% for the industry.

Explanation / Answer

Solution:

PART-1)

1) Percentage invested in inventory: 7%

Working: 350,000/500,000 * 100

2) Inventory turnover = 20

Working: 700,000 / 350,000

3) Weeks supply: 2.6

Working: 350,000/ (700,000/52)

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