Problem Solving (1) ABC Company has total end-of-year assets of $15 million. The

Question

Problem Solving (1) ABC Company has total end-of-year assets of $15 million. The first-of-the-year inventory was $300,000, with a year-end inventory of $600,000. The annual cost of goods sold was $16 million. Find (1) percent of assets in inventory, (2) inventory turnover, and (3) weeks of supply to asses supply chain performance. (2) XYZ distribution Corp. (see the following Table) likes to track inventory by using weeks of supply as well as by inventory turnover. XYZ Distribution Corporation Net Revenue Cost of Sales Inventory Total Assets 40,000 28,000 1800 22000 SHOW ALL YOUR WORK TO ANSWER THE FOLLOWING: A. What is its weeks supply? B. What percent of XYZ Corporation's assets are committed to inventory? C. What is its inventory turnover?

Explanation / Answer

(1)

(I) % of assets in inventory = average inventory/year end asset balance

= [(800,000+600,000)/2]/(15 million) = 4.67%

(II) Inventory turnover = cost of goods sold/average inventory = $16 million/[(800,000+600,000)/2] = 22.86

(III) Weeks of supply = 52/inventory turnover ratio = 52/22.86 = 2.28

2. a. Week's supply = on hand inventory/week sales = 1800/(40,000/52) = 2.34

b. Assets committed to inventory = 1800/22000 = 8.18%

c. Inventory turnover = 28,000/1800 = 15.56

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