The following table shows financial data (year 2006) for Dirt Cheap Wholesale and Kwiki-Mart, two US retailers.
DIRT CHEAP WHOLESALE
KWIKI-MART STORES
Inventories ($M)
4754
40894
Sales (net $M)
59217
397206
COGS ($M)
52762
326606
Assume that both companies have an average annual holding cost rate of 20% (i.e. it costs both retailers $2 to hold an item that they procured for $10 for one entire year).
a. How many days, on average, does a product stay in Dirt Cheap’s inventory before it is sold? Assume that stores operate 365 days a year.
b. How much lower (expressed in $’s) is, on average, the inventory cost for Dirt Cheap compared to Kwiki-Mart of a house hold cleaner valued at $5 COGS? Assume that the unit cost of the household cleaner is the same for both companies and that the price and the inventory turns of an item are independent.
