MAN5502+Exam+1+Summer+A+2013 - NAME MAN 5502 Summer A 2013...

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NAME MAN 5502 Summer A 2013 1) Butternut is a ski resort in Massachusetts. One of their triple chair lifts unloads 1296 skiers per hour at the top of the slope. (A triple chair lift can carry three passengers per chair.) The ride from the bottom to the top takes 5 minutes. How many skiers are riding on the lift at any one time? (5 pts) Trips per hour = 60/5 = 12 Therefore, 1296/12 = 108 skiers There are 108 skiers riding the lift at any one time 2) Home Depot’s annual turns are 4.7, its Cost of Goods Sold (COGS) is $44.7 Billion, and its gross margin is 33%. Recall, gross margin = (Revenue – COGS) / Revenue. What is the average inventory it holds in $ Billion ? (5 pts) Inventory Turns = Cost of Goods Sold/Inventory 4.7 = 44.7 billion/Inventory Inventory = 44.7/4.7 = $9.51 billion 3) A company’s holding cost is 16% per year. Its annual inventory turns are 9.5. The company buys an item for $50. What is the average cost ($s ), to hold this item in inventory (NOT annual holding cost but the average cost of each individual item on average)? (5 pts) Per-unit Inventory Costs = Annual Holding Costs/Inventory Turns 16/9.5 = 1.684% per unit $50(.01684) = $0.84 per year 4) Trader Bob, an organic food retail chain, operates 365 days a year. In 2007, the company turned its inventory approximately 25 times. The company’s COGS were 60% of its Sales and its annual Sales were about $7,000M that year. What was Trader Bob’s average inventory in 2007 (in $M)? (5 pts) Sales: $7,000 M COGS: (0.6) x (7,000M) = $4200M Inventory Turns: 25
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MAN 5502 Summer A 2013 Inventory Turns = Cost of Goods Sold/Inventory 25 = 4200 M/Inventory Inventory = 4200/25 = $168 M C HEAP R ETAILERS The following table shows financial data (year 2006) for Dirt Cheap Wholesale and Kwiki-Mart, two US retailers. DIRT CHEAP WHOLESALE KWIKI-MART STORES Inventories ($MM) 4754 40894 Sales (net $MM) 59217 397206 COGS ($MM) 52762 326606 Assume that both companies have an average annual holding cost rate of 20% (i.e. it costs both retailers $2 to hold an item that they procured for $10 for one entire year). 5a) How many days, on average, does a product stay in Dirt Cheap’s inventory before it is sold? Assume that stores operate 365 days a year. (5 pts) Inventory Turns = Cost of Goods Sold/Inventory 52762/4754 = 11.098 turns per year Inventory Turns = 1/Cycle Time, therefore Cycle Time = 1/Inventory Turns Cycle time = 1/11.098 = 0.0901 per year Daily Time = 0.0901 x 365 = 32.88 days A product spends an average of approximately 33 days (32.88) in inventory 5b) How much lower (expressed in $’s) is, on average, the inventory cost for Dirt Cheap compared to Kwiki-Mart of a house hold cleaner valued at $5 COGS? Assume that the unit cost of the house hold cleaner is the same for both companies and that the price and the inventory turns of an item are independent. (5 pts)
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