Question

​(Efficiency analysis) Baryla Inc. manufactures high quality decorator lamps in a plant located in eastern Tennessee. Last year the firm had sales of $96 million and a gross profit margin of 38 percent. a.How much inventory can Baryla hold and still maintain an inventory turnover ratio of at least 5.5 ​times? b. ​Currently, some of​ Baryla's inventory includes$1.7 million of outdated and damaged goods that simply remain in inventory and are not salable. What inventory turnover ratio must the good inventory maintain in order to achieve an overall turnover ratio of at least 5.5 ​(including the unsalable​ items)?

a.  How much inventory can Baryla hold and still maintain an inventory turnover ratio of at least 5.5 ​times?The amount of inventory that Baryla can hold is

​$10.8 million.​(Round to one decimal​ place.)

b. ​ Currently, some of​ Baryla's inventory includes $1.7 million of outdated and damaged goods that simply remain in inventory and are not salable. What inventory turnover ratio must the good inventory maintain in order to achieve an overall turnover ratio of at least 5.5 ​(including the unsalable​ items)?The inventory turnover ratio that the good inventory must have is times.  ​(Round to one decimal​ place.)

Just need the answer to b. Thanks

Answer 1

a. Inventory = Cost of goods sold / Inventory turnover ratio

Inventory = (sales * (1 - GP %) / 5.5

Inventory = (96 M * (1 - 38%) / 5.5

Inventory = 59.52 M / 5.5

Inventory = $10.82 M

b. Good inventory = Total inventory - unsalable inventory = $10.82 M - 1.70 M

Good inventory = 9.12 Million

The inventory turnover ratio that the good inventory = Cost of goods sold / Good inventory

The inventory turnover ratio that the good inventory = 59.52 M / 9.12 M

The inventory turnover ratio that the good inventory = 6.53 times

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