EBI Solar uses a high-tech process to turn silicon wafers into tiny solar panels
ID: 399581 • Letter: E
Question
EBI Solar uses a high-tech process to turn silicon wafers into tiny solar panels. These efficient and inexpensive panels are used to power low-energy, hand-held electronic devices. Last year, EBI Solar turned their inventory 4.5 times and had a cost of goods sold of $2.5 million. Assuming 52 business weeks per year: Express last year’s average inventory in weeks of supply. After several supply chain improvement initiatives, inventory investment has dropped across all inventory categories. While EBI’s cost of goods sold is not expected to change from last year’s level, the value of raw materials has dropped to $100,500; work-in-process to $25,800; and finished goods to $16,200. Assuming 52 business weeks per year, express EBI’s current total inventory level in weeks of supply and inventory turns.
Explanation / Answer
Inventory turnover ratio
= Cost of goods sold / Inventory value
Since cost of goods sold will be equal to 52 weeks of supply and Inventory turn to b 4.5
Therefore, last year’s average inventory
= 52/4.5 weeks of supply
= 11.55 weeks
After supply chain improvement initiatives :
Total value of inventory
= Value of raw material + Value of work in process + Value of finished goods
= $100,500 + $25,800 + $16,200
= $142,500
Cost of goods sold = $ 2500000
Number of weeks in a year = 52 weeks
Current total inventory in terms of weeks of supply
= Total value of inventory / Cost of goods sold x 52 weeks
= ( 142,500/ 2500000) x 52
= 2.964 weeks
Inventory turns
= Cost of goods sold / Total value of inventory
= 2500000/ 142500
= 17.54
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