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Chapter 3: Q15OQ(a) (page 419)

The owner of a large machine shop has just finished its financial analysis from the prior fiscal year. Following is an excerpt from the final report:

a. Compute the inventory turnover ratio (ITR).

b. Compute the weeks of supply (WS).

Short Answer

Expert verified

Financial analysis is the process of assessing the performance and suitability of firms, projects, budgets, and other financial operations.

Step by step solution

01

Calculations

The calculations are listed below:

Complete Inventory esteem = Value of creation materials available + Value of work-in-measure Inventory + Value of completed products close by

= 42,500 + 67,000 + 27,500

= $137,000

Inventory Turnover Ratio = Cost of Goods Sold/Total Inventory Value

= 305,000/137,000

=2.2

02

Inventory turnover ratio (ITR)

We can divide the cost of products by the average inventory for the same period to get the inventory turnover ratio.

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Most popular questions from this chapter

Sometimes a company may need to purchase goods or services that are unique, very complex, and/or extremely expensive. These would not be routine purchases, but there may be some vendors that could supply what is needed. What process would be used to transmit the company鈥檚 needs to the available vendors, asking for a detailed response to the needs?


Question:Santa Cruz Bottling is a manufacturer of organic soft drinks on the coast of central California. Its products are enjoying a growing reputation and increased demand throughout the American Southwest. Because of the high cost of transporting soft drinks, it is considering a new plant to serve the states of New Mexico and Arizona. A key concern in its search for a new location is the resultant transportation costs to serve its key markets. Following is a list of cities where its main wholesale customers are located, along with estimated annual demand in cases of product for each.

City

x-coordinate

y-coordinate

No. of cases

Phoenix

250

250

25,000

Tucson

350

125

20,000

Albuquerque

800

450

28,000

Santa Fe

850

520

17,000

a. Use the centroid method to recommend a location for the new bottling plant. Round your coordinates to one decimal place.

b. Do you have any concerns about the result? How would you deal with them?

Question:U.S. Air filter has hired you as a supply chain consultant. The company makes air filters for residential heating and air-conditioning systems. These filters are made in a single plant located in Louisville, Kentucky, in the United States. They are distributed to retailers through wholesale centers in 100 locations in the United States, Canada, and Europe. You have collected the following data relating to the value of inventory in the U.S. Air filter supply chain:

Quarter 1

(January

through March)

Quarter 2

(April

through June)

Quarter 3

(July through

September)

Quarter 4

(October through

December)

Sales (total quarter):

United States

300

350

405

375

Canada

75

60

75

70

Europe

30

33

20

15

Cost of goods

sold (total quarter)

280

295

340

350

Raw materials at

the Louisville

plant (end-of-quarter)

50

40

55

60

Work-in-process

and finished

goods at the

Louisville plant

(end-of-quarter)

100

105

120

150

Distribution centre

inventory (end-of-quarter):

United States

25

27

23

30

Canada

10

11

15

16

Europe

5

4

5

5

a. What is the average inventory turnover for the firm?

b. If you were given the assignment to increase inventory turnover, what would you focus on? Why?

c. The company reported that it used $500M worth of raw material during the year. On average, how many weeks of supply of raw material are on hand at the factory?

Explain the relationship between quality and productivity under the lean philosophy.

The McDonald鈥檚 fast-food restaurant on campus sells an average of 4,000 quarter-pound hamburgers each week. Hamburger patties are resupplied twice a week, and on average the store has 350 pounds of hamburger in stock. Assume that the hamburger patties cost $1.00 a pound. What is the inventory turnover for the hamburger patties? On average, how many days of supply are on hand?
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