The following table shows financial data for Costco and wal mart: CostcoInventor

Question

The following table shows financial data for Costco and wal mart:
CostcoInventories: $3,643Sales (net): $48106COGS: $41651
Wal Mart:Inventories: $29447Sales (net): $286103COGS: $215493
Assume that both companies have an average annual holding cost rate of 30 percent.a. How many days on avg. does a product stay in Costco's inventory before it is sold? Assume that stores are operated 365 days a year.
b. How much lower on avg the inventory cost for costco compared to walmart of a hh cleaner valued at $5 COGS? Assume that the unit cost of the household cleaner is the same for both companies and that the price and the inventory turns of an item are independent.

Explanation / Answer

INCORPORATE LITTLES LAW TO DETERMINE FLOW TIME FOR EACH UNIT FOR PART A: FIND FLOW TIME IN YEARS: FOR PART A: FIND FLOW TIME IN YEARS: Flow Time = 3,643 Dollars 41,651 Dollars Year = .0875 Years FOR ============================================================================================================================================================================================PART B: REPEAT PART A FOR WAL-MART: Flow Time = 29,447 Dollars 215,493 Dollars Year Compute Inventory costs for each firm COSTCO: Inventory ============================================================================================================================================================================================ Cost = 30% * .0875 Years = 2.625% * $5 = $.13 per unit ============================================================================================================================================================================================ WAL-MART: Inventory Cost = 30% * . 1366 Years = 4.098% * $5 = $.20 per unit answer ============================================================================================================================================================================================ COSTCOs PRODUCTS ARE .13/.20 = .65% LOWER answer

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