Question

The following figures are taken from the 2003 financial statements of McDonald's and Wendy's. Figures are in million dollars.

McDonalds Wendy's
Inventory $129.4 $54.4
Revenue 17140.5 3148.9
Cost of Goods Sold 11943.7 1634.6
Gross Profit 5196.8 1514.4
a. In 2003, what were McDonald's inventory turns? What were Wendy's turns?
b. Suppose it costs both McDonald's and Wendy's $3 (COGS) per their value meal offerings, each sold at the same price of $4. Assume that the cost of inventory for both companies is 30 percent a year. Approximately how much does McDonalds save in inventory cost per value meal compared to that of Wendy's? You may assume the inventory turns are independent of the price.
What is the answer for b??

Answer 1

In 2003, McDonald's inventory turns were 184.79 and Wendy's turns were 59.89. McDonald's saves approximately $1104.72 in inventory cost per value meal compared to Wendy's.

Step-by-step explanation:

In 2003, inventory turns can be calculated by dividing the Cost of Goods Sold (COGS) by the average inventory. For McDonald's, the inventory turns would be: 11943.7 / (129.4/2) = 184.79. For Wendy's, the inventory turns would be: 1634.6 / (54.4/2) = 59.89.

In order to calculate the inventory cost per value meal, we need to find the value meal sales for both companies. For McDonald's: 5196.8 / (4-3) = 5196.8. For Wendy's: 1514.4 / (4-3) = 1514.4. The inventory cost per value meal is then calculated as 30% of the value meal sales. For McDonald's: 5196.8 * 0.3 = 1559.04. For Wendy's: 1514.4 * 0.3 = 454.32.

Therefore, McDonald's saves approximately $1559.04 - $454.32 = $1104.72 in inventory cost per value meal compared to that of Wendy's.