(Ratio Analysis) Assuming a 360-day year, calculate what the average i

QUESTION

(Ratio Analysis) Assuming a 360-day year, calculate what the average investment in inventory would be for a firm, given the following information in each case.a. The firm has sales of $600,000, a gross profit margin of 10%, and an inventory turnover ratio of 6.b. The firm has a cost-of-goods-sold fi
For all of these we must use the following formulas: COGS = cost of goods sold inv = Inventory Inventory turnover = (COGS)/(Inv) Inventory turnover = (360)/(# days of inventory) COGS = Sales Gross Profit a) Sales = 600,000 and gross profit is 10% of that or 60,000. That means COGS is 540,000. Inventory turnover is 6 so 6 = (COGS)/(inv). COGS is 540,000 and we plug in to solve for Inventory which is 90,000 b) COGS is 480,000. We have 40 days of inventory so our turnover ratio is 360/40 = 9. We then set 9 =

(inv) and inventory is 53,333.33 c) COGS is 1.15M and our inventory turnover ratio is 5 so inventory is 230,000 d) at 14% margin our gross profit is 3.5M. 25M 3.5M = 21.5M which is COGS. WIth 45 days of inventory our turnover ratio is (360)/(45) = 8 and we set 8 = (COGS)/(inv) which is 8 = (21.5M)/(inv) and inventory is 2,687,500 Hope this help!

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