A television manufacturer would like to reduce its inventory. To this end, you are asked by the operations manager to assess its inventory level. You have the following information on average inventories from last year's financial statement: Raw materials $1,500,000 Work-in-process $1,200,000 Finished goods $800,000 In addition, the cost of goods sold last year (50 weeks) was $20 million. What is its total inventory (measured as weeks of supply) Answer

Weeks Of Supply = 27.82 weeks

Explanation:

Weeks of Supply tells us that on average how long an inventory will last based on current demand.

The formula to calculate it is given below

Weeks Of Supply = Average Aggregate Inventory Value / Weekly Cost of Sales

Weeks Of Supply = Raw Materials + Work In Process + Finished Goods / Weekly Cost of Sales

Weeks Of Supply = $1,500,000 + $1,200,000 + $800,000/$ 20,000,000/52

Weeks Of Supply = 10,700,000/384615.385 = 27.82 weeks

If the weeks of supply is lower it is better.

Inventory Turnover = $ 20,000,000/10,700,000=1.87 turns

A. 8.75 weeks

B. 5.71

Explanation:

a.

Weeks of supply = average aggregate inventory value/weekly sales at cost

= (1,500,000 + 1,200,000 + 800,000) / (20,000,000/50)

=3,500,000/400,000

= 8.75 weeks

b. Inventory turnover = annual sales (at cost) / average aggregate inventory value

=20 million/3.5 million

= 5.71