A manufacturing company producing medical devices reported $108,000,000 in sales over the last year. At the...

A manufacturing company producing medical devices reported $108,000,000 in sales over the last year. At the end of the same year, the company had $42,000,000 worth of inventory of ready-to-ship devices.

a. Assuming that units in inventory are valued (based on COGS) at $2,000 per unit and are sold for $4,000 per unit, what are the annual inventory turns? The company uses a 20 percent per year cost of inventory. That is, for the hypothetical case that one unit of $2,000 would sit exactly one year in inventory, the company charges its operations division a $400 inventory cost. (Round the answer to 2 decimal places.)

b. What is the per unit inventory cost in $ for a product that costs $2,000? (Round the answer to 2 decimal places.)

Solutions

Expert Solution

We can solve the desired result as follows:

a) Sales = $108,000,000

Cost per Unit = $ 2,000

Selling Price per Unit = $ 4,000

Number of Units Sold = 108,000,000 / 4,000

= 27,000,000 units

Cost of Goods sold = 27,000,000 * 2,000

= $ 54,000,000

Flow Time of Inventory = Inventory at end / Cost of Goods sold

= 42,000,000 / 54,000,000

= 0.7778 years

Inventory Turns = 1 / Flow time of Inventory

= 1 / 0.7778

= 1.29 times

B) Cost of Inventory = 25%

Cost = $ 2,000

Per Unit Inventory cost = Cost per unit * cost of inventory * flow time

= 2,000 * 25% * 0.7778

= $ 388.89

Hope I am able to solve your concern. If you are satisfied hit a thumbs up !!

jeff jeffy answered 2 years ago

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