The following data are pulled from a recent Ehmke Manufacturing Co Inc’s annual

ID: 429482 • Letter: T

Question

The following data are pulled from a recent Ehmke Manufacturing Co Inc’s annual report.

Assets

Raw material inventory $120,000

Work-in-process inventory $50,000

Finished goods inventory $300,000

Property, plant & equipment $500,000

Other assets $200,000

Total assets $1,170,000

Condensed Income Statement

Revenue $2,000,000

Cost of goods sold $600,000

Other expenses $1,000,000

Net income $400,000

Calculate:

a) Percent invested in inventory

b) Inventory turnover

c) Weeks of supply

Solution:

(a) Percent invested in inventory is calculated as;

Percent invested in inventory = (Raw material inventory + Work-in-process inventory + Finished goods inventory) / Total assets

Percent invested in inventory = ($120,000 + $50,000 + $300,000) / $1,170,000

Percent invested in inventory = [$470,000 / $1,170,000] x 100

Percent invested in inventory = 40.17%

(b) Inventory turnover is calculated as;

Inventory turnover = Cost of goods sold / Average Inventory

Inventory turnover = $600,000 / ($120,000 + $50,000 + $300,000)

Inventory turnover = 1.28

(c) Weeks of supply is calculated as;

Weeks of supply = Average Inventory / (Cost of goods sold / Number of weeks in a year)

Weeks of supply = ($120,000 + $50,000 + $300,000) / ($600,000 / 52)

Weeks of supply = $470,000 / $11,538.46

Weeks of supply = 40.73

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