Using data from your company’s warehouses, you fit an inventory turnover curve t
ID: 354613 • Letter: U
Question
Using data from your company’s warehouses, you fit an inventory turnover curve that is defined by the following function: I = 1.32 * D ^ 0.78; R-squared = 0.94. Which of the following statements is correct?
Inventories are equal to 1.32 times the demand volume of each warehouse.
An increase in inventories will result in a less-than-proportionate increase in demand.
On average, warehouses with lower demand volumes have lower inventory turns.
The R-squared value is statistically insignificant.
Inventories are equal to 1.32 times the demand volume of each warehouse.
An increase in inventories will result in a less-than-proportionate increase in demand.
On average, warehouses with lower demand volumes have lower inventory turns.
The R-squared value is statistically insignificant.
Explanation / Answer
The correct statement is -
On average, warehouses with lower demand volumes have lower inventory turns
Inventory Turnover ratio = COGS or Sales/Average Inventory
As the demand increases, the average inventory in the system increases and the sales also increase proportionately leading to the increase in number of inventory turns
As D increases, there will be less than proportionate increase in Average inventory but there will be proportionate increase in Sales or COGS.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.