Question

Question 4. (Efficiency analysis) Baryla Inc. manufactures high quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $93 million and a gross profit margin of 45 percent.

a. How much inventory can Baryla hold and still maintain an inventory turnover ratio of at least 6.3 times? (Round to one decimal place.) Show all work

b. Currently, some of Baryla's inventory includes $2.3 million of outdated and damaged goods that simply remain in inventory and are not salable.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.) Show all work

Answer 1

	Given Data
a	Sales	$93,000,000
	Gross profit margin	45%
	Cost of goods sold	55%	(1-Gross profit margin)
	Cost of goods sold in $	$        51,150,000	(93000000 x 55%)
	Inventory turnover ratio =	Cost of goods sold/average inventory = 6.3
	Average inventoy that ca be hold	cost of goods sold/6.3
		51150000/6.3
		$       8,119,047.6	part a ans
b	Average inventory held	$       8,119,047.6	as calculated above
	Less: outdated inentory	(2,300,000)
	Good inventory	$       5,819,047.6
	inventory ratio maintained by good inventory	cost of goods sold/good inventory
		51150000/5819047.60
	ratio maintained by good inventory	8.8	part b ans