Question

A company had an annual sales (at cost) of $38 million. During the year, the inventory turned over 7 times. Next year, the company plans to increase annual sales (at cost) by 19 percent. What will be the projected inventory turnover for next year if the company maintains the same inventory management efficiency?

Answer 1

The projected inventory turnover for next year is expected to stay at 7 times if the company maintains the same inventory management efficiency, despite a 19% increase in annual sales, resulting in projected sales of $45.22 million.

Step-by-step explanation:

The student asks how to project the inventory turnover for the next year if a company, which had annual sales of $38 million and an inventory turnover of 7 times, plans to increase sales by 19 percent while maintaining the same inventory management efficiency. To calculate this, we need to first determine the projected sales for next year by increasing the current sales by 19 percent. Next, we assume that the efficiency of inventory management remains unchanged, which means the inventory turnover rate will also remain the same.

Here is the calculation detail:

• Current annual sales: $38 million
• Projected increase in sales: 19%
• Projected annual sales for next year: $38 million + ($38 million × 0.19) = $45.22 million
• Assumed inventory turnover rate: 7 times

Therefore, with an increase in sales and same inventory efficiency, the projected inventory turnover for next year is expected to remain at 7 times.