Jack Jones, the materials manager at an enterprise is beginning to look for ways
ID: 453483 • Letter: J
Question
Jack Jones, the materials manager at an enterprise is beginning to look for ways to reduce inventories. A recent accounting statement shows that the inventory investment for raw materials is $4,120,200, for work-in-process is $6,917,000, and for finished goods is $2,756,000. This year's cost of goods sold will be about $33,124,000. Assume that there are 52 business weeks per year. a. Express total inventory as weeks of supply. The weeks of supply is weeks. (Enter your response rounded to one decimal place.) b. Express total inventory as inventory turns. The inventory turnover is turns per year. (Enter your response rounded to one decimal place.)Explanation / Answer
Given
Raw material = $4,120,200
Work in progress = $6,917,000
Finished goods = $2,756,000
COGS =$33,124,000
52 Business weeks per year
a) Total inventory as weeks supply
Week of supply= average aggregate inventory value/ weekly sales
Average aggregate inventory value = Raw material + WIP + Finished goods
= $4,120,200 + $6,917,000 + $2,756,000
= $13,793,200
Sales per week = COGS/no of weeks
=$33,124,000/52
= 637000
Week of supply = $13,793,200/637000
= 21.65 weeks
b) Inventory turnover
Inventory turnover = Annual sales (cost)/ Average aggregate inventory value
=$33,124,000/$13,793,200
= 2.401 turns
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