799-301 Chapter 02

Inventory turns total cogs average inventory at cost

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Unformatted text preview: $5 E $2 $2 $2 $2 $2 $2 $2 $2 $2 $2 $2 $2 Average Inventory On Hand Millions OPEN OH JAN MAY JUN JUL AUG SEP OCT NOV DEC $6 $8 $9 $12 $10 $12 $12 $13 $13 $12 $11 PURCH $12 $12 $15 $20 $18 $16 $17 $17 $20 $19 $22 $12 COGS $8 $10 $14 $17 $20 $14 $17 $16 $20 $20 $23 $21 SALES $10 $11 $16 $22 $22 $19 $21 $19 $25 $27 $30 $28 PROFIT $2 FEB MAR APR $2 $1 $2 $5 $2 $5 $4 $3 $5 $7 $7 $7 20% 9% 13% 23% 9% 26% 19% 16% 20% 26% 23% 25% OTHER $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 END OH $6 $8 $9 $12 $10 $12 $12 $13 $13 $12 $11 $2 MARGIN % Inventory Turns TOTAL COGS / Average Inventory at cost Average Inventory On Hand Total COGS = $10 ($120/12) = $200 TURNS = TTL COGS / AVG INV OH = 200 / 10 = 20.0 Inventory Turn Impact •  •  •  •  Low Turn (overstocked) + There are many costs associated with holding inventory You invest more money for the same profit You sell $120M (COGS) for $144M revenue –  You make $24M profit –  With a turn of 2 you have $60 M invested for $24 Million in Profit –  With a turn of 12 you have $10M invested for $24 Million in Profit •  Return on investment is 40% versus 240% •  Higher Turn builds Financial Confidence –  –  –  –  Banks lending Lines of Credi...
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This document was uploaded on 03/11/2014 for the course SUPPLY CHA 91 at NYU.

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