21. D&F reports annual sales of $20 million, cost of goods sold of $10 million,

Question

21. D&F reports annual sales of $20 million, cost of goods sold of $10 million, inventory of $5 million, and net income of $1 million. What is D&F’s monthly inventory turns and month-of-supply?

22. Company C&A sells 600 bottles of a dietary supplement per week at $100 per bottle. The supplement is ordered from a supplier who charges Company C&A $30 per order and $50 per bottle. Company C&A’s annual holding cost percentage is 40%. Assume Company C&A operates 50 weeks in a year. What is Company C&A’s total ordering and holding cost per year if the order quantity is 200?

Explanation / Answer

21. Answer :

D&F's Monthly Inventory Turns = Cost of goods sold / (Inventory * 12 months)

= $ 10 million / ($ 5 million*12 months)

= 0.16 times

Month of Supply =Inventory / (Cost of goods sold per month)

= $ 5 million / ($ 10 million/12 months)

= $ 5 million / $ 0.83

= $ 6

22 Answer :

Number of orders to be placed = Total quantity of bottles to be sold in a year / Quantity per order

= (600 bottles * 50 weeks) / 200 bottles

= 30,000 bottles / 200 bottles

= 150 orders

1) Total ordering cost = Number of orders in a year * cost of placing one order

= 150 orders * $ 30

= $ 4,500

2) Holding Cost per year = 0.5 * Quantity ordered * Cost of bottle per unit * Holding Cost percentage

= 0.5 * 200 * $ 50 * 40%

= $ 2,000

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