Each pallet of $3$M$$s product in the warehouse of Laurel Canyon Inc. holds $$5,777$ of product at Laurel Canyon Inc.$\text{'}$s cost of goods $($your selling price to Ms$.$ Mitchell$),$ which she sells at a gross margin of $15\mathrm{.}4\%$ to industrial plants. Ms$.$ Mitchell sells $162$ pallets each year to her customers. Due to $3$M manufacturing and shipping delay challenges two years ago, Joni made a reluctant decision to carry an average of $2$ months of inventory of $3$M product at all times.

What is Laurel Canyon Inc$$s annual ROI $($quantified in both $US dollars and $\%)?$

By how much must inventory costs be reduced in a year for Laurel Canyon$$s ROI to be $4\mathrm{.}7\%?$

Hint on Return: Remember, that if Laurel Canyon Inc.$$s gross margin is $15\mathrm{.}4\%$ of the selling price $($by definition$),$ then her cost of goods is $84\mathrm{.}6\%$ of the selling price $($by definition$).$ The selling price less the cost of goods would be the gain $($profit$)$ per pallet, and she sells $162$ pallets over a period of one year.

Hint on Investment: Remember that Laurel Canyon Inc. currently carries $2$ months of inventory all year long. This is a real cost to Joni which she definitely factors into her assessment of Laurel Canyon$$s annual ROI associated with your $3$M products.

Answer rating: 100% (QA)

To calculate Laurel Canyon Incs annual ROI we need to consider the selling price cost of goods gross margin and inventory costs Lets break it down ste... View the full answer