Baker Mfg. Inc. (see Table below) wishes to compare its inventory turnover to th

Question

Baker Mfg. Inc. (see Table below) wishes to compare its inventory turnover to those of industry leaders, who have turnover of about 13 times per year and 8% of their assets invested in inventory.

ARROW DISTRIBUTING CORP.

Net revenue     $16,500

Cost of sales    $13,500

Inventory         $ 1,000

Total assets      $ 8,600

BAKER MFG. INC.

Net revenue     $27,500

Cost of sales    $21,500

Inventory         $ 1,250

Total assets      $16,600

What is Baker’s inventory turnover?

What is Baker’s percent of assets committed to inventory?

How does Baker’s performance compare to the industry leaders?

Explanation / Answer

Ans...
a) What is Baker’s inventory turnover?
Inventory turnover ratio= Cost of goods sold / average Inventory
= $21,500/ $1250
= 17.2
b) What is Baker's percent of assets commi²ed to inventory?
percent investment in inventory = (Average inventory / total assets)*100
= (1250/16600)* 100 = 7.53%
c) How does Baker's performance compare to the industry leaders
When compare with industry leaders the Inventory turnover is higher then leader but Baker's performance is low because they are .47% lower than the industry leaders performance.

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