Question

(Efficiency analysis) Baryla Inc. manufactures high quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $94 million and a gross profit margin of 36 percent. a. How much inventory can Baryla hold and still maintain an inventory turnover ratio of at least 5.6 times? b. Currently, some of Baryla's inventory includes $1.8 million of outdated and damaged goods that simply remain in inventory and are not salable. What inventory turnover ratio must the good inventory maintain in order to achieve an overall turnover ratio of at least 5.6 (including the unsalable items)?

Answer 1

Cost of Goods Sold=Sales*(1-Gross Profit Margin)=94*(1-36%)=60.16 million
1.
=60.16/5.6
=10.74285714 million

2.
=60.16/(60.16/5.6-1.8)
=6.72715655