Heartland Company\'s budgeted sales and budgeted cost of goods sold for the comi

Question

Heartland Company's budgeted sales and budgeted cost of goods sold for the coming year are $142,360,000 and $35,253,000 respectively. Short-term interest rates are expected to average 10%. If Heartland can increase inventory turnover from its present level of 9 times a year to a level of 12 times per year, compute its expected cost savings for the coming year.

Heartland Company's budgeted sales and budgeted cost of goods sold for the coming year are $142,360,000 and $35,253,000 respectively. Short-term interest rates are expected to average 10%. If Heartland can increase inventory turnover from its present level of 9 times a year to a level of 12 times per year, compute its expected cost savings for the coming year.

Explanation / Answer

Hi,

Please find the answer as follows:

Inventory turnover = Cost of goods sold/Average inventory

9 = 35253000/Average inventory

Average inventory = 35253000/9 = 3917000

Average Inventory (New) = 35253000/12 = 2937750

Cost savings = (3917000 - 2937750)*10% = 97925

Answer is 97925.

Thanks.

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