Brief Exercise 24-9 Heartland Company’s budgeted sales and budgeted cost of goods sold for the coming...

Brief Exercise 24-9 Heartland Company’s budgeted sales and budgeted cost of goods sold for the coming year are $146,660,000 and $90,630,000, respectively. Short-term interest rates are expected to average 10%. If Heartland can increase inventory turnover from its present level of 8 times a year to a level of 12 times per year. Compute its expected cost savings for the coming year. Expected Cost Savings $

Expert Solution

Situation 1.

Inventory Turnover = Cost of Goods Sold / Average Inventory
8 = $ 90,630,000 / Average Inventory
Average inventory = $ 90,630,000 / 8

= $1,13,28,750

Situation 2.

Inventory Turnover = Cost of Goods Sold / Average Inventory

12 = $ 90,630,000 / Average Inventory
Average Inventory = $ 90,630,000 / 12

= $ 75,52,500

Cost savings = ($1,13,28,750 - $ 75,52,500 ) x 10%

= $ 37,76,250 x 10%

= $ 3,77,625

ekkarill92 answered 1 year ago

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