Concept explainers
a)
To determine: Weeks of supply for Company A.
Introduction:
a)
Answer to Problem 6P
Weeks of supply for Company A is 3.85.
Explanation of Solution
Given information:
| Company A | |
| Net revenue | $16,500.00 |
| Cost of sales | $13,500.00 |
| Inventory | $1,000.00 |
| Total assets | $8,600.00 |
Formula to calculate week of supply:
Calculation of week of supply:
Sale per week is calculated by dividing the annual sales with the number of weeks in a year. Annual sales $13,500 is divided with 52 which give $259.60.
Week of supply is calculated by dividing inventory with sales per week. The inventory $1,000 is divided with $259.60 yields 3.85 as weeks of supply for company A.
Hence, weeks of supply for Company A is 3.85.
b)
To determine: Percentage of assets committed to inventory in Company A.
b)
Answer to Problem 6P
Answer: 11.63% of total assets of Company A is committed to inventory.
Explanation of Solution
Given information:
| Company A | |
| Net revenue | $16,500.00 |
| Cost of sales | $13,500.00 |
| Inventory | $1,000.00 |
| Total assets | $8,600.00 |
Formula to inventory investment:
Calculation of inventory investment:
Percentage of assets committed to inventory can be calculated by computing inventory investment. Inventory investment is calculated by dividing inventory with the total assets. The inventory $1,000 is divided with total assets $8,600 which yields 11.63% of assets of Company A is committed to inventory.
Hence, 11.63% of total assets of Company A are committed to inventory.
c)
To determine: Inventory turnover of Company A.
c)
Answer to Problem 6P
The turnover of Company B is 13.5.
Explanation of Solution
Given information:
| Company A | |
| Net revenue | $16,500.00 |
| Cost of sales | $13,500.00 |
| Inventory | $1,000.00 |
| Total assets | $8,600.00 |
Formula to calculate turnover:
Calculation of turnover:
The turnover is calculated by dividing cost of sales with inventory. The cost of sales $13,500 is divided with inventory $1,000 which yields turnover of 13.5 for company A.
Hence, the turnover of Company A is 13.5.
d)
To Compare: Performance of Company A with industry leaders.
d)
Answer to Problem 6P
Company A needs to improve its performance.
Explanation of Solution
Given information:
| Company A | Company B | |
| Net revenue | $16,500.00 | $27,500.00 |
| Cost of sales | $13,500.00 | $21,500.00 |
| Inventory | $1,000.00 | $1,250.00 |
| Total assets | $8,600.00 | $16,600.00 |
Formula:
Comparison calculation of turnover and inventory investment:
| Company A | Company B | |
| Net revenue | $16,500.00 | $27,500.00 |
| Cost of sales | $13,500.00 | $21,500.00 |
| Inventory | $1,000.00 | $1,250.00 |
| Total assets | $8,600.00 | $16,600.00 |
| Turn over | 13.5 | 17.2 |
| Inventory investment | 11.63% | 7.53% |
From the above calculation of turnover and inventory investment it can be inferred that Company A has a turnover of 13.5 when the turnover of Company B is 17.2. The inventory investment of Company A is 11.63% when the Company B has 7.53%.
In both the aspects, Company B is far ahead of Company A. So, the performance of Company A has to be better and the management team must look into the aspects to improve the performance.
Hence, Company A needs to improve its performance.
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Chapter 11 Solutions
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