11.5 Baker Mfg. Inc. wishes to compare its inventory turnover to those of indusr

Question

11.5 Baker Mfg. Inc. wishes to compare its inventory turnover to those of indusry leaders, who have turnover of about13 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?

Please list the step by step process. Thank you!

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

Explanation / Answer

Inventory turnover ratio = (cost of goods sold/inventory invested)

Percent of assets committed to inventory = (total inventory investment/total assets) x 100

a.

For Baker Mfg. Inc.

Inventory turnover = 21500/1250

                             = 17.2

b.

Percent of assets committed to inventory = (1250/16600) x 100

                                                            = 7.53

c.

Benchmarking:

Measure

Industry

Baker Mfg. Inc.

Inventory Turnover

13

17.2

% of assets committed to inventory

8%

7.53%

Interpretation: Baker's performace on the basis of % of assets committed to invetory is better than the industry leader. Whereas the Baker has to improve on the inventory turnover.

Measure

Industry

Baker Mfg. Inc.

Inventory Turnover

13

17.2

% of assets committed to inventory

8%

7.53%

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