Assignment 3504
1. Adam’s Candles has sales of half a million dollars per year, with an average of 1000 retail packages costing $10 in inventory at any given time at the distribution warehouse. When retailers order the candles from the warehouse, they pay $25 per package. Calculate the inventory turnover on an annual basis. How could Adam use this measure? What are the types of use you could make of knowing your inventory turnover?
2. Adam’s sister owns a food truck she operates out of Ft. Lauderdale, Florida and is open all year round since she operates on the beach across from “The Breakers,” a luxury hotel. She is interested in calculating how many days of inventory she carries on-hand and whether that is too much, too little, or just right. To operate her food truck, she stores her inventory at her home in a refrigerated storage building, averaging $5,000 in inventory at any given. Her monthly sales are $35,000 per month, with an annual cost of goods (COGS) of $260,000 per year. How can Adam’s sister use this number of days in inventory in her business? What are some management decisions knowing this information she would be better able to make?
3. Adam’s brother owns a walnut orchard, which produces four times per year, providing 4 inventory turnovers per year. If the brother’s total sales are $450,000 per year, what is the average inventory on hand at any given time. Once again- what purpose does the measure of average inventory mean to Adam’s brother? What management decisions are possible for him to improve his operation.
4. You have just calculated and considered three inventory measures- inventory turnover, number of days in inventory, and average inventory. You should recognize these measures from your managerial accounting coursework as part of calculating financial ratios. In an accounting class, you evaluated these ratios from the standpoint of analyzing the operations and/or profitability of the firm. It this assignment, you have seen and discussed how you can use this information from an internal management standpoint. What are the main differences between the three measures from your standpoint that make one more effective than another? Explain.
