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We witness the following infomation on Lona's Lil Inc. for the most recent year are shown...

We witness the following infomation on Lona's Lil Inc. for the most recent year are shown below, along with the inventory conversion period (ICP) of the firms against which it benchmarks. The firm's new CFO believes that the company could reduce its inventory enough to reduce its ICP to the benchmarks' average. If this were done, by how much would inventories decline? Use a 365-day year.

Cost of goods sold =

$85,000
Inventory =

$20,000
Inventory conversion period (ICP) =

85.88
Benchmark inventory conversion period (ICP) =

38.00

$7,316

$8,129

$9,032

$10,036
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Answer #1

We need to use the formula:

Inventory / COGS x 365 to find the ICP

Now based on the current numbers the ICP using the above formula is coming out to be 85.88

However in order to get it closer to benchmark ICP of 38, inventory need to be reduced by $10,036

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