Question

b. (5 points) Currently, some of Baryla's inventory includes $2.3 million of outdated and damaged goods that simply remain in inventory and are not salable. What inventory ratio must the good inventory maintain in order to achieve an overall turnover ratio of at least 6.3 (including the unsalable items)? (Round to one decimal place.)

Answer 1

Answer:

8.7

Explanation:

Sales = $93,000,000

Gross profit margin = 45%

Gross profit= 45%*93,000,000 = $41,850,000

Gross profit = sales - cost of goods sold

Cost of goods sold = Gross profit + sales = 41,850,000 + 95,000,000 = $53,150,000

Inventory turnover = cost of goods sold/inventory

Inventory = $52,250,000/6.3= $8,436,508

Given:

Total Inventory = $8,436,508

Unsalable items = $2,300,000

We have the formula:

Good inventory = Total Inventory - Unsalable items = $8,436,508 - $2,300,000 = $6,136,508

The inventory turnover ratio the good inventory must maintain in order to achieve an overall turnover ratio of at least 6.3 (including the unsalable items) is  

53,150,000/6,136,508 = 8.7