Suppose a retailer turns its inventory of soda 50 times per year. On average, it

Question

Suppose a retailer turns its inventory of soda 50 times per year. On average, it has 400 bottles of soda on its shelves. What is the retailer’s average daily sales rate? (Assume 365 days per year.)

Suppose a retailer turns its inventory of soda 50 times per year. On average, it has 400 bottles of soda on its shelves. What is the retailer’s average daily sales rate? (Assume 365 days per year.)

A manufacturing company producing medical devices reported $60 million in sales over the last year. At the end of the same year, the company had $20 million worth of inventory of ready-to-ship devices. Assuming that units in inventory are valued (based on cost of goods sold) at $1000 per unit and are sold for $2000 per unit, what is the company’s annual inventory turnover?

Explanation / Answer

We know Turnover = Cost of sales/Average stock held

Cost of sales = Turnover * Average stock held = 50*400 = 20000

Daily sales rate = 20000/365 = 54.79

Sales = $60,000,000 per year / $2000 per unit = 30,000 units per year

Inventory = $20,000,000 / $1000 per unit = 20,000 units in inventory

Turns = COGS/Inventory = $30,000,000/$20,000,000 = 1.5 turns

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