Data on Liu Inc. for the most recent year are shown below, along with the Days Inventory Held (DIH) period of the firms against which it benchmarks.

Data on Liu Inc. for the most recent year are shown below, along with the Days Inventory Held (DIH) period of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its inventory enough to reduce its DIH to the benchmarks' average. If this were done, by how much would inventories decline?

Cost of goods sold =	$85,000
Inventory =	$20,000
DIH =	85.88
Benchmark DIH =	38.00

Solutions

Expert Solution

Benchmark DIH = 38

Cost of inventory / COGS * 365 = 38

Cost of inventory = 38 * COGS / 365

Cost of inventory = 38 * 85000 / 365

Cost of inventory = 8849.32

Cost of Inventory should reduced by = 20,000 - 8849.32 = 11150.68

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jeff jeffy answered 2 years ago

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