Practice Problem
Chapter 11—Supply Chain Management
Problem 11.1
For a better understanding of its performance Howard’s Furniture wants to determine its (1)
average inventory, (2) percent of assets invested in inventory, (3) inventory turnover, and (4)
weeks of inventory on hand. You have obtained the following information from Howard’s
accounting department:
Inventory as of January 1
= $120,000
Inventory as of December 31
= $128,000
Total Assets as of December 31
= $400,000
Annual cost of goods sold
= $250,000
1 ANSWER
Average inventory = (Beginning inventory + Ending inventory) / 2
=
($120,000 + $128,000) / 2 = $124,000.
Percent invested in inventory = Average inventory / Total assets) x 100
= ($ 124,000 / $400,000) x 100 = 31%
Inventory turnover = Cost of goods sold / Average Inventory investment
= $ 250,000 / $124,000 = 2.02
Weeks of inventory = Average inventory / (weekly cost of goods sold)
= $124,000 / ($250,000/52) = 25.8
2