a)Baker’s inventory turnover is directly proportional to the cost of goods sold

Question

a)Baker’s inventory turnover is directly proportional to the cost of goods sold and inversely proportional to the Investment in the Inventory.

As per the given data,

The Cost of Goods Sold is $ 21,500 and the Inventory investment is $ 1,250.

Baker’s Inventory turnover = Cost of Goods Sold / Inventory Investment

= $ 21,500 / $ 1,250

= 17.2

b)The Baker’s percent of assets committed to inventory is calculated by the formula given as below:

% Inventory = (All the inventory Investment / Total Assets) * 100

            Total Assets given in the table as $ 16,600.

            Percentage Inventory of Baker’s = ($ 1,250 / $ 16,600) * 100

                                                                 = 0.0753 * 100

                                                                 = 7.5 %

c) As Baker Mfg. Inc. wishes to compare its inventory turnover to those of industry leaders, who have turn-over of about 13 times per year and 8% of their assets invested in inventory. So, as per the data available, the industry leaders are 0.47 % performing more than the Baker’s performance.

Explanation / Answer

11.5 Baker Mfg. Inc. (see Table 11.9) wishes to compare its inventory turnover to those of industry leaders, who have turn-over of about 13 times per year and 8% of their assets invested in inventory.

a) What is Baker’s inventory turnover?

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

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

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