Question

The Bawl Corporation supplies alloy ball bearings to auto manufacturers in Detroit. Because of its specialized manufacturing process, considerable work-in-process and raw materials are needed. The current inventory levels are $2,470,000 and $1,566,000, respectively. In addition, finished goods inventory is $1,200,000 and sales (at cost) for the current year are expected to be about 48 million.
Express total inventory as:
a) Weeks of supply
b) Inventory turns

Answer 1

Answer:

a. The Weeks of supply is 5.67 week

b. The Inventory turns is 9.167

Explanation:

a. In order to calculate the weeks of supply we would have to use the following formula:

Weeks of Supply = Average Aggregate Inventory Value/Weekly Sales

Average Aggregate Inventory Value = Raw Materials + WIP + Finished Goods = $2,470,000+ $1,566,000 + $1,200,000 = 5,236,000

Sales Per Week = COGS/52 weeks per year = $48,000,000/52 = $923,076

Weeks of Supply = Average Aggregate Inventory Value/Weekly Sales = $5,236,000/$923,076 = 5.67 or 5.7 week

b Inventory Turnover = Annual Sales/Average Aggregate Inventory Value = 48000000/5236000 = 9.167 or 9.17

Answer 2

a) Expressing total inventory as weeks of supply is 5.67 weeks.

b) Expressing total inventory as Inventory turns is 9.17x.

Data and Calculations:

Inventory levels:

Work-in-process = $2,470,000

Raw materials = $1,566,000

Finished Goods = $1,200,000

Total inventory = $5,236,000

Sales revenue for the current year = $48 million

Weekly sales = $923,077 ($48,000,000/52)

a) Expressing total inventory as weeks of supply = Total inventory/weekly sales = 5.67 ($5,236,000/$923,077) weeks.

b) Expressing total inventory as Inventory turns = Sales/total inventory

= $48,000,000/$5,236,000

= 9.17x

Thus, the total inventory as weeks of supply is 5.67 weeks, while the total inventory as inventory turns is 9.17x.

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