Quantitative Reasoning Problem 3

ACC 121

Assignment is to be completed as a Word Document, PDF, or on notebook paper and submitted through Moodle

Assume a company maintains an inventory level of $30,000, meaning the average balance in the inventory records is $30,000. Also assume its annual cost of good sold (COGS) is $120,000.

The management is proposing to reduce inventory levels to $15,000 with no impact on cost of goods sold. To do so they propose working with suppliers to get quicker deliveries and to make smaller, more frequent orders.

Required:

Compute the companys inventory turnover and its days sales in inventory under both current conditions and proposed conditions.

Evaluate and comment on the merits of their proposal given your analysis for part 1. Identify any concerns you might have about the proposal.