Question

The inventory turnover for Haute Hippie has gone from an average of 10.71 times to 11.78 times per year. How does this affect the inventory period? Assume 365 days per year.

Answer 1

Given that,

Inventory turnover ratio for Haute Hippie has gone from average of 10.71 times to 11.78 times. It means that inventory in the system is now revolving 11.78 times in a year as compared to earlier only 10.71 times in a year.

In other words, the inventory period of the company has been reduced.

Mathematically, inventory period = days in period/inventory turnover ratio

So, old inventory period was 365/10.71 = 34.08 days

New inventory period = 365/11.78 = 30.98 days

So, inventory period has reduced for the firm or average number of days inventory held in the company is reduced by increasing inventory turnover ratio.