Question

1. The Rogers Pharmacy is owned by Sue and Bill Rogers. Bill manages the general goods portion of the pharmacy whose sales and inventory records are maintained separately from the prescription medicines. The general goods portion is composed of medical supplies, candy and snacks, and toys and stuffed animals. Bill conducted a physical inventory on January 2, 2014. He found that the store had inventory at retail of $26,345 and cost at $15,393. During the year, sales totaled $140,938 at a cost of goods sold of $100,498. On January 2, 2015, Bill conducted another inventory. Calculated in retail dollars, the store’s inventory is $19,234. In cost dollars, it is $11,293. What is the inventory turnover at retail and at cost?

Discussion: In the past The Rogers Pharmacy’s in-stock levels have hovered at around 98%, and in 2013 the pharmacy had a turn number of 6.0 at retail. However, in 2014 in-stock levels dropped to 95%. What does this mean for the health of the 2014 turn numbers?

Answer 1

Inventory turnover at retail = total sales / average inventory at retail

average inventory at retail =( opening + closing ) / 2

= (26345 + 19234 ) /2

= 22789.5

Inventory turnover at retail = 140938 / 22789.50

= 6.18

Inventory turnover at cost = cost of goods sold / average inventory at cost

average inventory at cost =( opening + closing ) / 2

= ( 15393 + 11293 ) /2

= 13343

Inventory turnover at cost = 100498 / 13343

= 7.53

The health of 2014 turn number will improve. As the inventory turnover numbers will go up due to less availabilty of instock levels. which will indicate better utilisation of the inventory for the company.