Question

Elaina loves making specialty flip flops and has decided it is time she starts selling her own. She wants to do all the research she can before she goes into business. She was an operations major, so she knows she has to figure out the supply chain metrics if she wants to be successful. She wants an inventory turnover ratio of 4.9. She has forecasted her sales to be $3,977 a week and she will operate for 52 weeks. What should she aim to have her average aggregate inventory value to be if she wants to hit her desired inventory turnover ratio of 4.9?

Answer 1

Elaina should aim for an average inventory value of approximately $42,204.49 to reach her desired inventory turnover ratio of 4.9, based on her forecasted annual sales of $206,804.

Step-by-step explanation:

Elaina is looking to calcular her average aggregate inventory value based on a desired inventory turnover ratio of 4.9. The inventory turnover ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory value over a certain time period. Since Elaina has forecasted her weekly sales to be $3,977, and plans to operate 52 weeks a year, her annual sales are forecasted to be $3,977 * 52 = $206,804. To achieve her targeted turnover ratio, we use the formula:

Inventory Turnover Ratio = Annual Sales / Average Inventory Value

Thus, Average Inventory Value = Annual Sales / Inventory Turnover Ratio = $206,804 / 4.9 ≈ $42,204.49. Elaina should aim for her average inventory value to be approximately $42,204.49 to achieve the inventory turnover ratio of 4.9.