Question

Bill Anderson, the Materials Manager of XYZ Firm, is interested in assessing the inventory management performance of the firm. The following (partial) Annual Income Statement and the four Quarterly Balance Sheet for the fiscal year 202X has been obtained.

XYZ Company, Income Statement, FY 202X

Net sales $950,000
Cost of goods sold 620,000
Operating expenses 190,000

XYZ Company, Quarterly Balance Sheet, FY 202X

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Cash $46,000 $37,900 $82,000 $54,000
Accounts receivable 55,500 46,000 123,000 72,000
Inventory:
Finished goods 42,440 35,080 12,540 39,050
Work-in-process 27,780 25,770 20,120 32,990
Materials 32,580 79,000 52,910 22,670
Plant assets 510,000 510,000 540,000 540,000

Required:
a. How many weeks of supply does the XYZ Company carry?
b. How many inventory turns did the company went through in FY 202X?

Answer 1

Net sales = $950,000

Cost of goods sold = $660,000

Finished Goods$ W.I.P$ Materials$

Q1 42,440 27,780 32,580

Q2 35,080 25,770 79,000

Q3 12,540 20,120 52,910

Q4 39,050 32,990 22,670

Total 129,110 106,660 187,160

a. Inventory Turnover Ratio

Sales/F.G COGS/WIP COGS/R.M.

950,000/129,110 66,000/106,660 660,000/187,160

7.35 times 6.18 times 3.52 times

b. Inventory weeks on hand (i.e. 52 weeks/inventory)

52/7.35 52/6.18 52/3.52

7.07 8.41 14.77

7 weeks 8 weeks 15 weeks