Question

1. A famous clothing designer has developed a home goods line. One of the products in the line is throw pillows that are covered in intricate beading. The maintain margin on the throw pillows is 46% with an initial margin of 55%. What would the inventory turnover need to be to earn a GMROII of 3.07?

Answer 1

The Inventory Turnover Ratio need to earn a GMROII of 3.07

Here, we’ve margin on the throw pillows = 46%

Initial Margin = 55%

GMROII = 3.07

The GMROII = [Margin on the pillows / Initial Margin] x Required Inventory Turnover Ratio

3.07 = [0.46 / 0.55] x Required Inventory Turnover Ratio

3.07 = 0.8364 x Required Inventory Turnover Ratio

Therefore, the Required Inventory Turnover Ratio = 3.07 / 0.8364

Inventory Turnover Ratio = 3.67 Times

“Hence, the inventory turnover need to be to earn a GMROII of 3.07 will be 3.67 Times”