End of Year (in millions) Beginning of Year (in millions) Kracker Foodstuff Wins

Question

End of Year (in millions) Beginning of Year (in millions) Kracker Foodstuff Winston The cost of goods sold for each company was: $3,310 3,720 4,736 $1,986 3,906 9,472 Kracker Foodstuff Winston Cost of Goods Sold (in millions) $33,100 52,080 37,888 a. Determine the number of days' sales in inventory for each of the three companies. Assume 365 days a year. Round all interim calculations to one decimal place. For number of days' sales in inventory, round final answers to the nearest day inventory turnover, round to one decimal place. Company names Kracker Foodstuff Winston Number of Days' Sales in Inventory Inventory Turnover 29.2 days 26.7 days 68.4 days 12.5 13.7 V 5.3 b. If Winston had Kracker's number of days' sales in Inventory, how much additional cash flow would have been generated from the smaller inventory relative to its actual average inventory position? Round interim calculatlons to one decima and your final answer to the nearest million. 4,072.96 X million Feedback Check My Work a. 1. Determine the average daily cost of the merchandise sold by dividing the cost of goods sold by 365 2. Divide the average inventory by the average daily cost of the merchandise sold. The average inventory is the total of the beginning and ending inventories divided by two. 3. Divide the cost of goods sold by the average inventory. The average inventory is the total of the beginning and ending inventories divided by two b. Use the hypothetical numbers and refigure the average inventory using the number of days' sales in inventory calculation. Based on this, would Winston have more or less cash tied up in inventory?

Explanation / Answer

Inventory turnover ratio = Cost of good sold / Average Inventory Number of days sales in Inventory = 365 days / Inventory turnover ratio. If Winston had Kracker's number of days sales in Inventory , then it's Inventory turnover ratio would be = 365 days / No.of days sales in Inventory = 365 days / 29.2 days = 12.5 New closing Inventory position calculation is as under, Average Inventory would be = Cost of goods sold / Inventory turnover ratio = $37888 / 12.5 = $3031.04 Present Average Inventory Position = ($9472+$4736) / 2 = $7104 Additional cash flow would have been generated = $7104 - $3031.04 = $4072.96 i.e.$4073 million

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