16-13 (Ratio analysis) Assuming a 360-day year, calculate what the average inves

Question

16-13 (Ratio analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case. a. The firm has sales of $600,000, a gross profit margin of 10 percent, and an inventory turnover ratio of 6. b. The firm has a cost-of-goods-sold figure of $480,000 and an average age of inventory of 40 days. c. The firm has a cost-of-goods-sold figure of $1.15 million and an inventory turnover rate of 5. d. The firm has a sales figure of $25 million, a gross profit margin of 14 percent, and an average age of inventory of 45 days.

Explanation / Answer

Hi, Please find the answers as follows: a) COGS = 600000 - 60000 = 540000 6 = 540000/Average Inventory Average Inventory = 90000 b) 40 = 360/480000/Average Inventory 40*480000 = 360Average Inventory Average Inventory = 53333 c) 5 = 1.15/Average Inventory Average Inventory = .23 million d) COGS = 25 - .14*25 = 21.5 45 = 360/21.5/Average Inventory 967.5 = 360Average Inventory Average Inventory = 967.5/360 = 2.6875 or 2.69 million. Thanks.

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