Kroger, Safeway Inc., and Whole Foods Markets, Inc. are three grocery chains in
ID: 2478619 • Letter: K
Question
Kroger, Safeway Inc., and Whole Foods Markets, Inc. are three grocery chains in the United States. Inventory management is an important aspect of the grocery retail business. Recent balance sheets for these three companies indicated the following merchandise inventory
The cost of goods sold for each company was:
Determine the number of days’ sales in inventory (use 365 days and round to the nearest day) and the inventory turnover for the three companies. Round all interim calculations to one decimal place. For number of days' sales in inventory, round final answers to the nearest day, and for inventory turnover, round to one decimal .
b. If Kroger had Whole Foods’ number of days’ sales in inventory, how much additional cash flow would have been generated from the smaller inventory relative to its actual average inventory position? Round interim calculations to one decimal place and your final answer to the nearest million.
End of Year (in millions) Beginning of Year (in millions) Kroger $5,114 $4,966 Safeway 2,470 2,623 Whole Foods 374 337Explanation / Answer
Average Inventory
Kroger = $4,966+$5,114 =$10,080/2=$5,040
Safeway=$2,623+$2,470=$5,093/2=$2546.50
Whole Foods=337+374=711/2=$355.50
AVerage Invntory /CoGS *365
Kroger=$5,040/$71,494 *365
=26 days
Safeway=$2546.50 /31,837*365
=29 days
Whole Foods=$355.50 /11,699*365
=11. days
Inventory Turnover = COGS / Average Inventory
Kroger=$71,494 /$5,040
=14.18
Safeway= 31,837 /$2546.50
=12.5
Whole Foods=11,699 /$355.50
=32.90
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b)Whole Foods =AVerage Inventory of Whole Foods / Inventory Turnover Ratio of Kroger
=$355.50 /14.18
=$25
AVerage inventory =$355.50 - $25
=$330.50(pro forma average inventory)
Proforma basis
AVerage is $330.50
Opening is $337
Ending =$324
Actual basis
OPening = 337
Ending = 374
____________________
difference =37
Difference from proforma = $337 - $324
=$13
Difference = 37+13
=$50 million
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