Question

Baker Mfg. Inc. (see Table 11.9) wishes to compare its inventory turnover to those of industry leaders, who have turnover of about 13 times per year and 8% of their assets invested in inventory.
a) What is Baker’s inventory turnover?

b) What is Baker’s percent of assets committed to inventory?

c) How does Baker’s performance compare to the industry leaders?

Table 11.9

ARROW DISTRIBUTING CORP.
Net revenue- $16,500

Cost of sales- $13,500

Inventory- $ 1,000

Total assets - $ 8,600

Baker MFg. Inc.

Net revenue- $27,500

Cost of sales- $21,500

Inventory- $ 1,250

Total assets- $16,600

Answer 1

Answer:

The answer is:

a. 17.2

b. 7.53%

c. Baker's performance is 0.47% lower than the industry performance

Explanation:

a. Baker's Inventory turnover = cost of sales/inventory

$21,500/$ 1,250

=17.2

b. Baker's Percentage of assets committed to inventory = (inventory/assets) x 100

($1,250/$16,600) x 100

7.53%

c. The industry's Percentage of assets committed to inventory is 8% whereas Baker's own 7.53%, meaning Baker's performance is 0.47% lower than the industry performance