Final answer:
The company with $43 million in sales and 5 times inventory turnover has an average inventory of $8.6 million. To support a 19% sales increase next year without raising inventory value, it must achieve an inventory turnover of nearly 6 times.
Step-by-step explanation:
If a company had an annual sales of $43 million and the inventory turned over 5 times, we can calculate the average inventory by dividing the cost of goods sold by the inventory turnover ratio.
The cost of goods sold (COGS) is $43 million and the inventory turnover ratio is 5. So, the average inventory is $43 million / 5 = $8.6 million.
Next year, the company plans to increase annual sales by 19 percent. Therefore, the projected sales for next year would be $43 million * 1.19 = $51.17 million.
To maintain the same average inventory value while supporting increased sales, the company must increase its inventory turnover. To find the required turnover ratio, we divide the projected COGS by the current average inventory value. Hence, $51.17 million / $8.6 million = approximately 5.95 times.
Therefore, the company needs to achieve an inventory turnover of nearly 6 times to support next year's sales without increasing the average aggregate inventory value.