Question

Ohio Valley Homecare​ Suppliers, Incorporated​ (OVHS) had $ 16 million in sales in 2018. Its cost of goods sold was $ 6.4 ​million, and its average inventory balance was $ 1.9 million.

a. Calculate the number of inventory days outstanding for OVHS.
b. The average number of inventory days in the industry is 73 days. By how much would OVHS reduce its investment in inventory if it could improve its inventory days to meet the industry​ average?

Answer 1

The number of inventory days outstanding for OVHS is 107.03 days. If OVHS could meet the industry average inventory days of 73 days, it would reduce its investment in inventory by 34.03 days.

a. To calculate the number of inventory days outstanding for OVHS, we use the following formula: Inventory Days Outstanding = (Average Inventory Balance / Cost of Goods Sold) x 365. Therefore, Inventory Days Outstanding = ($1.9 million / $6.4 million) x 365 = 107.03 days.

b. If OVHS could improve its inventory days to meet the industry average of 73 days, it would reduce its investment in inventory by (107.03 - 73) days. Therefore, it would reduce its investment by 34.03 days.