Question

You have to use the numbers that is given to figure out what the question is asking.

1. You are the Nutrition and Food Services Director and your Chief Financial Officer (CFO) has requested that you evaluate the inventory within the department. Specifically, the CFO wishes to know if the facility is effectively managing the inventory.   

To accomplish this task, you will evaluate the inventory turnover from the previous quarter. You have determined the following information:

Inventory value at the beginning of the quarter: $47,000

Purchases made during the quarter: $225,000

Inventory at the end of the period: $67,999

Your Procurement Specialist has determined the value of inventory for each month of the quarter. Those figures are as follows:  

Month #1 = $42,000 Month #4 = $48,353

Month #2 = $44,996 Month #5 = $45,921

Month #3 = $49,214 Month #6 = $46,555

To assist you in completing this question, you will need the following calculations:  

A).  

Inventory at beginning of period $XXX

+ Purchases during the period +XXX

Total value of available food $XXX

-Inventory at end of period -XXX

Cost of goods sold during period $XXX

B). Inventory turnover = Cost of goods sold/Average inventory value

What is your inventory turnover ratio?  

What does a high inventory ratio indicate?  

What does a low inventory ratio indicate?  

How do you interpret your inventory ratio to your CFO?

2. Your CFO has asked you to conduct a break-even analysis of your hospital cafeteria for the upcoming fiscal year.  

To assist you in completing this question, you will need the following calculation:

Your costs for the upcoming fiscal year:

Insurance: $1,500.00 (fixed cost)

Salaries: $594,259.00 (semi-variable cost—80% is variable)

Utilities: $20,000.00 (semi-variable cost—60% is fixed.)

Food license: $2,300.00 (fixed cost)

Supplies: $453,816.00 (variable cost)

Projected Sales: $1,253,743.00

What is the break-even point, in sales, for this cafeteria for the upcoming fiscal year?  

Answer 1

1.

Particulars	Quarter
Opening Inventory	47000
Add: Purchases	225000
Total available food	272000
Less: Closing inventory	67999
Cost of goods sold	204001

Average inventory value = (Opening inventory+ closing inventory)/2

=47000+67999)/2 = 57499.5

Average inventory = 57499.5

Inventory turnover ratio = 204001/57499.5 = 3.55 times

High inventory turnover ratio indicates that the company is selling goods quickly and there is enough demand for the products of the company.

Low inventory turnover ratio indicates the company has weaker sales and decling demand for the products.

2. Contribution statement of hospital cafeteria

Sales	1253743
Less: Variable cost
Supplies	(453816)
Salaries(594259*80%)	(475407.2)
Utilities(20000*40%)	(8000)
Contribution	316519.8
Contribution (%)	25.25
Fixed Cost
Insurance	1500
Food license	2300
Salaries	118851.8
Utilities	12000
Total fixed cost	134651.8

Breakeven sales = Fixed Cost/ Contribution

= 134651.8/25.25%

= 533274.45