Rome Corporation is a supplier of ball bearings. Because of the specialized manu

Question

Rome Corporation is a supplier of ball bearings. Because of the specialized manufacturing process employed, considerable work-in-process and raw material inventories are created. The current inventory levels are $1,500,000 and $2,000,000, respectively. In addition, finished goods inventory is $3,500,000, and sales (at cost) for the current year are expected to be about $28 million. Assume they operate 50 weeks per year. a. What is their total inventory (measured as weeks of supply)? b. What is their inventory turnover?

Explanation / Answer

Weeks of supply = Average aggregate inventory value/weekly sales at cost =

(1,500,000 + 2,000,000 + 3,500,000)/(28,000,000/50) = 12.50 weeks

Inventory turnover = annual sales (at cost)/average aggregate inventory value =

28 million/(1.5+2+3.5) million = 4.00

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