Question

The owner of a large machine shop has just finished its financial analysis from the prior fiscal year. Following an excerpt from the final report:

Net revenue $375000
Cost of goods sold 322000
Value of production materials on hand 42500
Value of work-in-progress inventory 37000
Value of finished goods on hand 12500
a. Compute the inventory turnover ratio (ITR). (Round your answer to 1 decimal place.)
Inventory turnover ratio ......... per year
b. Compute the weeks of supply (WS). (Do not round intermediate calculations. Round to 1 decimal place.)
Weeks of supply ........

Answer 1

a. Inventory turnover ratio = Cost of goods sold / Average Aggregate Inventory Value

Inventory turnover ratio = $322,000 / $42,500 + $37,000 + $12,500

Inventory turnover ratio = $322,000 / $92,000

Inventory turnover ratio = 3.5

Therefore, the inventory turnover ratio is 3.5

b. Weeks of supply = Average Aggregate Inventory Value / Cost of Goods Sold * 52 (weeks)

Weeks of supply = $42,500 + $37,000 + $12,500 / $322,000 * 52

Weeks of supply = $92,000 / $322,000 * 52 weeks

Weeks of supply = 14.85 weeks

Therefore, the weeks of supply is 14.85 weeks