EBI Solar uses a high-tech process to turn silicon wafers into tinysolar panels. These efficient and inexpensive panels are used topower low-energy, hand-held electronic devices. Last year, EBISolar turned their inventory 4.5 times and had a cost of goodssold of $2.5 million. Assuming 52 business weeks per year: a. Express last year’s average inventory in weeks of supply.b. After several supply chain improvement initiatives, in-ventory investment has dropped across all inventorycategories. While EBI’s cost of goods sold is not expected to change from last year’s level, the value of raw materialshas dropped to $100,500; work-in-process to $25,800; andfinished goods to $16,200. Assuming 52 business weeksper year, express EBI’s current total inventory level inweeks of supply and inventory turns.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
EBI Solar uses a high-tech process to turn silicon wafers into tiny
solar panels. These efficient and inexpensive panels are used to
power low-energy, hand-held electronic devices. Last year, EBI
Solar turned their inventory 4.5 times and had a cost of goods
sold of $2.5 million. Assuming 52 business weeks per year:
a. Express last year’s average inventory in weeks of supply.
b. After several supply chain improvement initiatives, in-
ventory investment has dropped across all inventory
categories. While EBI’s cost of goods sold is not expected
to change from last year’s level, the value of raw materials
has dropped to $100,500; work-in-process to $25,800; and
finished goods to $16,200. Assuming 52 business weeks
per year, express EBI’s current total inventory level in
weeks of supply and inventory turns.
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