Data on Shin Inc. for 2008 are shown below, along with the inventory conversion

Question

Data on Shin Inc. for 2008 are shown below, along with the inventory conversion period (ICP) of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its inventory enough to reduce its ICP to the benchmarks' average. If this were done, by how much would inventories decline? Use a 365-day year.


Cost of goods sold = $85,000
Inventory = $20,000
Inventory conversion period (ICP) = 85.88
Benchmark inventory conversion period (ICP) = 38.00


Answer $7,316
$8,129
$9,032
$10,036
$11,151

Explanation / Answer

Hi, Option E is correct. Calculations are follows: 38 = 365/Inventory Turnover Ratio 38*ITR = 365 ITR = 365/38 = 9.61 Using this value we can calculate inventory value: Inventory Turnover Ratio = COGS/Inventory 9.61 = 85000/Inventory Inventory = 8855 Decline in Inventory = 20000 - 8855 = 11155 which is near to 11151 Thanks Aman

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