Happy Valley Homecare Suppliers, Incorporated (HVHS), had $11.7 million in sales in 2015. Its cost of goods sold was $4.68 million, and its average inventory balance was $1.84 million. a. Calculate the average number of days inventory outstanding ratios for HVHS. b. The average number of inventory days in the industry is 73 days. By how much must HVHS reduce its investment in inventory to improve its inventory days to meet the industry? (Hint: Use a 365-day year.) a. Calculate the number of days inventory outstanding ratios for HVHS. The number of inventory days outstanding is days. (Round to two demical places.) b. The average number of inventory days in the industry is 73 days. By how much must HVHS reduce its investment in inventory to improve its inventory days to meet the industry? To match the industry average number of inventory days, HVHS would reduce its inventory by $ million. (Round to three decimal place.)
Happy Valley Homecare Suppliers, Incorporated (HVHS), had $11.7 million in sales in 2015. Its cost of goods sold was $4.68 million, and its average inventory balance was $1.84 million. a. Calculate the average number of days inventory outstanding ratios for HVHS. b. The average number of inventory days in the industry is 73 days. By how much must HVHS reduce its investment in inventory to improve its inventory days to meet the industry? (Hint: Use a 365-day year.) a. Calculate the number of days inventory outstanding ratios for HVHS. The number of inventory days outstanding is days. (Round to two demical places.) b. The average number of inventory days in the industry is 73 days. By how much must HVHS reduce its investment in inventory to improve its inventory days to meet the industry? To match the industry average number of inventory days, HVHS would reduce its inventory by $ million. (Round to three decimal place.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The Return on Equity (RoE) is a measure of the profitability of a business concerning the funds by its stockholders/shareholders. ROE is a metric used generally to determine how well the company utilizes its funds provided by the equity shareholders.
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![**Inventory Management in Practice: Happy Valley Homecare Suppliers, Inc. (HVHS)**
Happy Valley Homecare Suppliers, Incorporated (HVHS), reported $11.7 million in sales for the year 2015. Their cost of goods sold was recorded at $4.68 million, and the company maintained an average inventory balance of $1.84 million.
**Task Details:**
**a. Calculate the Average Number of Days Inventory Outstanding for HVHS.**
The average number of inventory days outstanding is a crucial metric in inventory management. It represents the average time period it takes for a company to sell its entire inventory. This calculation is essential for understanding the efficiency of a company's inventory management in comparison to industry standards.
- *Instruction:* Calculate the number of days inventory outstanding for HVHS.
Formula:
\[
\text{Number of Inventory Days Outstanding} = \frac{\text{Average Inventory}}{\text{Cost of Goods Sold}} \times 365
\]
- *Answer:* The number of inventory days outstanding is \(\_\_\) days. (Round to two decimal places.)
**b. Aligning with Industry Standards**
Industry benchmarks offer a comparative standpoint to measure a company's efficiency. The industry average for inventory days stands at 73 days.
- *Instruction:* By how much must HVHS decrease its inventory investment to bring its inventory days on par with the industry?
To achieve the industry standard of 73 days, HVHS needs to reassess its inventory strategy and possibly reduce excess inventory, resulting in optimized cash flow and storage cost reduction.
Formula:
\[
\text{Necessary Inventory Reduction} = \left(\frac{\text{Current Average Inventory Days} - \text{Industry Average Days}}{365}\right) \times \text{Cost of Goods Sold}
\]
- *Answer:* HVHS would need to reduce its inventory by \(\_\_\) million dollars. (Round to three decimal places.)
This exercise encourages a deep dive into inventory optimization, emphasizing both practical and strategic financial management necessary for maintaining competitiveness within the industry.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00cf11b4-9fb9-4bb4-9dd4-8775ed33f82e%2F956ac2bf-66f7-41b0-8c45-cbcbe03c9d4f%2F6v3lrp7i_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Inventory Management in Practice: Happy Valley Homecare Suppliers, Inc. (HVHS)**
Happy Valley Homecare Suppliers, Incorporated (HVHS), reported $11.7 million in sales for the year 2015. Their cost of goods sold was recorded at $4.68 million, and the company maintained an average inventory balance of $1.84 million.
**Task Details:**
**a. Calculate the Average Number of Days Inventory Outstanding for HVHS.**
The average number of inventory days outstanding is a crucial metric in inventory management. It represents the average time period it takes for a company to sell its entire inventory. This calculation is essential for understanding the efficiency of a company's inventory management in comparison to industry standards.
- *Instruction:* Calculate the number of days inventory outstanding for HVHS.
Formula:
\[
\text{Number of Inventory Days Outstanding} = \frac{\text{Average Inventory}}{\text{Cost of Goods Sold}} \times 365
\]
- *Answer:* The number of inventory days outstanding is \(\_\_\) days. (Round to two decimal places.)
**b. Aligning with Industry Standards**
Industry benchmarks offer a comparative standpoint to measure a company's efficiency. The industry average for inventory days stands at 73 days.
- *Instruction:* By how much must HVHS decrease its inventory investment to bring its inventory days on par with the industry?
To achieve the industry standard of 73 days, HVHS needs to reassess its inventory strategy and possibly reduce excess inventory, resulting in optimized cash flow and storage cost reduction.
Formula:
\[
\text{Necessary Inventory Reduction} = \left(\frac{\text{Current Average Inventory Days} - \text{Industry Average Days}}{365}\right) \times \text{Cost of Goods Sold}
\]
- *Answer:* HVHS would need to reduce its inventory by \(\_\_\) million dollars. (Round to three decimal places.)
This exercise encourages a deep dive into inventory optimization, emphasizing both practical and strategic financial management necessary for maintaining competitiveness within the industry.
Expert Solution
Step 1
a)Inventory days Outstanding refers to number of days the company holds Inventory before it is sold
Inventory days Outstanding
= ( Average Inventory/Cost of goods sold)* 365
= (1.84 million /4.68 million) * 365
= 0.3931623932 * 365
= 143.504273518
= 143.5 days
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