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21 May, 17:54

Your firm's last three years of sales have been $1 million, $2 million, and $3 million (oldest to most recent). Year-end inventory was $250k, $500k, and $750k respectively. You are considering purchasing an inventory system that will double your inventory turnover. Which of the following is a good estimate for the amount you'll save with regard to inventory investment next year, assuming your sales will be $4 million - i. e., what's the difference between your estimates of inventory with the system and without? (Assume that your costs of goods sold stay at a constant percentage of sales throughout the past three years and next year; use same-year CoGS/Inv as your inventory turnover formula.)

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  1. 21 May, 18:03
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    we will save 500,000 dollars worth of inventory.

    Explanation:

    If sales are 4,000,000 then the expected inventory will be 1,000,000

    Giving an inventory turnover of:

    4,000,000 / 1,000,000 = 4

    IF we double the inventory turnover then:

    4,000,000/inventory = 8

    So the inventory will be of: 4,000,000/8 = 500,000

    the difference is for 500,000
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