a. Cost of Goods Sold (COGS) for full year = (417+456+432+352) = 1657 Total inve

Question

a. Cost of Goods Sold (COGS) for full year = (417+456+432+352) = 1657

Total inventory of Q1 = Raw material at lousville plant + WIP and finished goods at Louisville plant + Distribution inventory at US, Canada and Europe = 67+108+60+15+6 = 241

Total inventory of Q2 = 44+121+39+17+7 = 211

Total inventory of Q3 = 82+141+46+16+10 = 279

Total inventory of Q4 = 83+191+58+26+7 = 339

Average inventory = (241+211+279+339)/4 = 267.5

Average Inventory turnover = COGS / Average inventory = 1657/267.5 = 6.194

b)

Inventory turnover is the ratio of COGS to Average inventory. So reducing average inventory increase inventory turnover. Also increasing sales increases the COGS and thus inventory turnover increases.

c)

Average raw material inventory = (67+44+82+83)/4 = 69

Weeks of supply of raw material = (Average raw material inventory / Raw material used during the year ) * 52

Weeks of supply = (69/500)*52 = 7.18

Reduce the amount of inventory or increase sales or both

Explanation / Answer

The U.S. Airfilter company has hired you as a supply chain consultant. The company makes air filters for residential heating and air-conditioning systems. These filters are made in a single plant located in Louisville, Kentucky, in the United States. They are distributed to retailers through wholesale centers in 100 locations in the United States, Canada, and Europe. You have collected the following data relating to the value of inventory in the U.S. Airfilter supply chain:

a. What is the average inventory turnover for the firm? (Round your answer to 3 decimal places.)

Average inventory turnover            

b. If you were given the assignment to increase inventory turnover, what would you focus on?

    

c. The company reported that it used $500M worth of raw material during the year. On average, how many weeks of supply of raw material are on hand at the factory? (Round your answer to 2 decimal places.)

Weeks of supply            ________

QUARTER 1
(JANUARY
THROUGH
MARCH) QUARTER 2
(APRIL THROUGH
JUNE) QUARTER 3
(JULY
THROUGH
SEPTEMBER) QUARTER 4
(OCTOBER
THROUGH
DECEMBER) All amounts in millions of U.S. dollars Sales (total quarter): United states 422 480 460 376 Canada 91 125 101 94 Europe 74 35 41 18 Cost of goods sold (total quarter) 417 456 432 352 Raw materials at the Louisville plant
  (end-of-quarter) 67 44 82 83 Work-in-process and finished goods at
  the Louisville plant (end-of-quarter) 108 121 141 191 Distribution center inventory
  (end-of-quarter): United states 60 39 46 58 Canada 15 17 16 26 Europe 6 7 10 7

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