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John thinks that his firm carries too much inventory. In the industry standards, the company should turn over inventory every 40 days but it takes...
John thinks that his firm carries too much inventory. In the industry standards, the company should turn over inventory every 40 days but it takes about 60 instead for the company. (assume 60 days of sales are now tied up in inventory) sales are $24,000,000 annually. Assume a 360 day year. Annual expenses associated with inventory are 6%, financing costs 1%, storage & insurance cost 2%, shrinkage and obsolescence on a yearly basis.
1) what is the current inventory?
2) what should it be?
3) how much would inventory be reduced if John clear up if he brings the inventory down to 40 days?
4) How much would he save in expenses?
