Question

Ohio Valley Homecare​ Suppliers, Incorporated​ (OVHS) had $20 million in sales in 2015. Its cost of goods sold was $8.0 ​million, and its average inventory balance was $1.9 million.

a. Calculate the number of inventory days outstanding for OVHS.

The number of inventory days is ____days. ​(Round to the nearest​ integer.)

b. The average number of inventory days in the industry is 73 days. By how much would OVHS reduce its investment in inventory if it could improve its inventory days to meet the industry​ average?

OVHS would reduce its inventory by ​$______. ​(Round to the nearest​ dollar.)

Answer 1

a. Calculate the number of inventory days outstanding for OVHS.

Inventory Turnover ratio = Cost of goods sold / Average Inventory = $8 million / $ 1.9 million = 4.21

The number of inventory days is 365 / Inventory Turnover ratio = 365 / 4.21 = 86.69 days

b. The average number of inventory days in the industry is 73 days. By how much would OVHS reduce its investment in inventory if it could improve its inventory days to meet the industry​ average?

Industry Average = The number of inventory days is 365 / Inventory Turnover ratio = 365 / X = 73 days

Inventory Turnover OVHS = 365 / 73 = 5

Inventory Turnover ratio = Cost of goods sold / Average Inventory = $8 million / X = 5

Average Inventory OVHS = $ 8 million / 5 = $ 1.6 million

OVHS would reduce its inventory by ​$ 1.9 million - $ 1.6 million = $ 0.3 million