A company has sales of $15 million/year. Last year the company spent $3.5 M for raw materials. It also paid its direct labor staff 1.7M in total labor costs. The company allocated $2M to overhead. The average inventory last year was $2 million.
a. What is the inventory turns ratio?
b. What would be the reduction in average inventory if do better materials management inventory turns were increased to 10 times per year
c. If the cost of carrying inventory is 25% of the average inventory, what is the annual savings?
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