6a, treat the end-of-quarter inventory as proxy for average inventory. 6c, note
ID: 435009 • Letter: 6
Question
6a, treat the end-of-quarter inventory as proxy for average inventory.
6c, note that the query is about weekly supply of "raw material", so just use the average "raw material" across the four quarters, and the annual supply of raw material as given.
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: QUARTER 1 (JANUARY THROUGH QUARTER 3 JULY QUARTER 4 QUARTER 2 (APRIL THROUGH JUNE) OCTOBER THROUGH SEPTEMBER) DECEMBER) All amounts in millions of U.S. dollars Sales (total quarter): 414 135 United states Canada Europe 402 96 34 514 25 434 126 Cost of goods sold (total quarter) 347 Raw materials at the Louisville plant (end-of-quarter) 73 62 72 Work-in-process and finished goods at the Louisville plant (end-of-quarter) 109 159 124 Distribution center inventory (end-of-quarter): United states Canada Europe 58 17 6 34 19 20 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? Reduce the amount of inventory or reduce sales or both Increase the amount of inventory or increase sales or both Reduce the amount of inventory or increase s sales or bothExplanation / Answer
a) Total cost of goods sold = 384+347+453+434 =1618
Average inventory = Average raw materials inventory + Average WIP inventory + Average distribution center inventory
= (73+62+67+72)/4 + (109+159+124+222)/4 + (58+31+34+38)/4 + (17+19+22+20)/4 + (6+4+9+6)/4
= 288
Average inventory turnover = Total cost of goods sold / Average inventory = 1618/288 = 5.618
b) Reduce the amount of inventory or increase sales or both
c) Average raw material inventory = (73+62+67+72)/4 = 68.5
Weeks of raw material supply = 68.5/(500/52) = 7.12 (considering 52 weeks a year)
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