3-29-11b

# 3-29-11b - – BOM inventory January \$15,000 – BOM...

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Gross Margin Return on Inventory HUEC 3043

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GMROI All business want to know how much money they make on the investment in the business Retail is the same Previous measures of profitability we have used: Sales per Sq. Foot Sales per Hour Average Transaction
GMROI Inventory is no exception Inventory is an investment of money into physical goods which will in turn provide a profit for the company Goal is maximize profit and minimize investment and/or costs

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GMROI Gross Margin Return on Inventory: Ratio of the \$ amount of Gross Margin to the average cost of inventory over a specified period of time Tells us the efficiency of investments made into inventory Analyzes if the amount of \$ invested into inventory creates enough gross margin to maintain profit levels
Calculating GMROI GMROI = Gross Margin \$ / Avg. Inventory at Cost Calculated over a set period of time By using book inventory can be calculated each month

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Calculating Average Inventory at Cost For a six month season;

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Unformatted text preview: – BOM inventory January: \$15,000 – BOM inventory February: \$ 24,000 – BOM inventory March: \$31,000 – BOM inventory April: \$19,000 – BOM inventory May: \$ 23,000 – BOM inventory June: \$17,000 – EOM inventory June: \$26,000 Calculating Average Inventory at Cost • Add all the inventory amounts together and divide by the number of inventory amounts • (\$15,000 + \$24,000 + \$31,000 + \$19,000 + \$23,000 + \$17,000+ \$26,000) / 7 • = \$22,142.86 average amount of inventory on hand at any given time during this selling season Calculating GMROI • Gross Margin: \$350,000 • \$350,000 / \$22,142.86 = \$15.80 GMROI • This means for ever \$1 we invest into inventory we will make \$15.80 in gross margin • Let you know if inventory levels are being kept too high or low GMROI • Great measure of productivity • As a buyer, your job is to invest the companies money into inventory and ensure the company makes a profit based on your investments...
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3-29-11b - – BOM inventory January \$15,000 – BOM...

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