Question

1)Calculate GMROI and inventory turnover given annual sales of $20,000, average inventory (at cost) of $4,000 and a gross margin of 45%. (1point)

2)Using the following information, calculate additions to stock: (1 point)

Sales	$26,000
EOM stock	$100,000
BOM stock	$88,000

3)Using the following information, calculate the average BOM stock-to-sales ratio for a six-month merchandise budget plan: ( 2 points).

                GMROI                 130%

                Gross Margin     46%

4)Today is July 19. Buyers at two different stores are attempting to assess current open-to-buy given the following information:

Store A: Actual BOM stock	$50,000
Monthly additions actual	$25,000
Merchandise on order to be delivered	$10,000
Planned monthly sales Planned reductions	$30,000 $5,000
Planned EOM stock	$65,000

Store B: Actual BOM stock	$75,000
Monthly additions actual	$30,000
Merchandise on order to be delivered	$12,000
Planned monthly sales Planned reductions	$40,000 $6,000
Planned EOM stock	$75,000

What is the open-to-buy on July 19? What does this number mean to you for each store? (2 points).

5)What is the order point and how many units should be reordered if a food retailer has an item with a 7-day lead-time, 10-day review time, and daily demand of 8 units? Say 70 units are on hand and the retailer must maintain a backup stock of 20 units to maintain a 98 percent service level? (1 point).

6)A retailer is expecting a good month and is adjusting the sales forecast upward by $750. Using the following information, calculate the March open-to-buy: ( 1 point).

Planned purchases (March)	$32,000
Monthly additions actual	21,000
Merchandise on order (March)	8,000
Open-to-buy unused (February)	2,000

7)The Sports Shop has beginning inventory of $12,000 and planned ending inventory of $13,400. Planned sales for the period are $5,800. Calculate the open-to-buy for the month. (1 pont).

8)What is the reorder point, and how many units should be reordered if a retailer has an item that has a lead time of 10 days, a review time of 15 days, daily demand of 18 units, and there are 82 units on hand and the retailer must maintain a backup stock of 27 units to maintain a 95% service level? (1 point).

Answer 1

1)Calculate GMROI and inventory turnover given annual sales of $20,000, average inventory (at cost) of $4,000 and a gross margin of 45%. (1point)
Inventory turnover = (sales at retail/avg. inventory at cost)*(1-gross margin %)
= ($20,000/4,000) *(1-45%) = 5*0.55 = 2.75
GMROI = Average sales * gross margin / Inventory cost
= 20,000*45% / 4,000 = 2.25
2)Additions to stock = sales + EOM inventory – BOM inventory

= 26,000 + 100,000 - 88,000 = $38,000

3) Average BOM stock-to-sales ratio for a six-month merchandise budget plan:
GMROI = Average sales / Inventory turnover * gross margin
=> 130% = (Average sales / Inventory turnover) X 46
Average sales / Inventory turnover = 130 / 46 = 2.83

Inventory Turnover = 2.83* (1 – 46%) = 2.83 X 0.54 = 1.53

Average stock-to-sales ratio = 6months/1.53 = 3.92

4) The open-to-buy on July 19:

Store A:
Open-To-Buy = Planned EOM stock – Projected EOM stock
= 65,000 – (Actual BOM stock + Actual monthly additions + Actual on order - planned sales - planned reductions)
= 65,000 - (50,000 + 25,000+10,000- 30,000 - 5,000)
=65,000 - 50,000 = 15,000

Store B:
= 65,000 – (Actual BOM stock + Actual monthly additions + Actual on order - planned sales - planned reductions)
= 75,000 - (75,000 + 30,000+12,000- 40,000 - 6,000)
=75,000 - 71,000 = 4,000

5) Order point = [(Demand/day)(Lead time + Review time)] + (Back-up stock)

= [8units per day *(7 lead time + 10 review time)] + 20 backup stock
                = 156 is the order point

Units to be ordered = 156 - units on hand = 156 - 70 = 86units

6) Store A:
Open-To-Buy = Planned EOM stock – Projected EOM stock
= 32,000 – (Actual BOM stock + Actual monthly additions + Actual on order - planned sales - planned reductions)
= 32,000 +2,000- (21,000+8,000-750) = 34,000 - 28,250 = 5,750
7) Open-To-Buy = Planned EOM stock – Projected EOM stock

= 13,400 - (12,000-5,800) = 7,200
8)Order point = [(Demand/day)(Lead time + Review time)] + (Back-up stock)

= [18units per day *(10 lead time + 15 review time)] + 27 backup stock
                = 477 is the order point

Units to be ordered = 156 - units on hand = 156 - 82 = 395units