Question

Baker Mfg. Inc. (see Table 11.9) wishes to compare its inventory turnover to those of industry leaders, who have turnover of about 13 times per year and 8% of their assets invested in inventory.

a) What is Baker’s inventory turnover?

b) What is Baker’s percent of assets committed to inventory?

c) How does Baker’s performance compare to the industry leaders?

Table 11.9

ARROW DISTRIBUTING CORP.
Net revenue- $16,500

Cost of sales- $13,500

Inventory- $ 1,000

Total assets - $ 8,600

Baker MFg. Inc.

Net revenue- $27,500

Cost of sales- $21,500

Inventory- $ 1,250

Total assets- $16,600

Answer 1

Baker Mfg. Inc. has an inventory turnover of 17.2 times and 7.53% of its assets committed to inventory. Compared to the industry leaders with a turnover of 13 times and 8% of assets in inventory, Baker has a higher turnover and a slightly lower percentage of assets in inventory.

Step-by-step explanation:

The student is asking for help with calculating and analyzing inventory turnover and the percentage of assets committed to inventory for Baker Mfg. Inc., in order to compare it with industry leaders.

Inventory turnover is calculated by dividing the cost of sales by the average inventory. For Baker Mfg. Inc., the calculation is as follows:

Inventory Turnover = Cost of Sales / Inventory

= $21,500 / $1,250

= 17.2 times

To find the percentage of assets committed to inventory, we divide the inventory by the total assets and then multiply by 100 to get the percentage.

Percentage of Assets = (Inventory / Total Assets) × 100

= ($1,250 / $16,600) × 100

= 7.53%

In comparison to industry leaders with an inventory turnover of about 13 times per year and 8% of their assets invested in inventory, Baker Mfg. Inc. has a higher inventory turnover at 17.2 times, and a slightly lower percentage of assets committed to inventory at 7.53%.

Answer 2

The answer is:

a. 17.2

b. 7.53%

c. Baker's performance is 0.47% lower than the industry performance

Step-by-step explanation:

a. Baker's Inventory turnover = cost of sales/inventory

$21,500/$ 1,250

=17.2

b. Baker's Percentage of assets committed to inventory = (inventory/assets) x 100

($1,250/$16,600) x 100

7.53%

c. The industry's Percentage of assets committed to inventory is 8% whereas Baker's own 7.53%, meaning Baker's performance is 0.47% lower than the industry performance