03.07.2022 - 18:12

# The following table shows financial data year 2012 for Dirt Cheap Wholesale and Kwiki Mart, two retailers. Assume that both companies have an average annual holding cost rate of 20% costs both retaile

Question:

The following table shows financial data (year 2012) for Dirt Cheap Wholesale and Kwiki-Mart, two retailers.

DIRT CHEAP WHOLESALE KWIKI-MART STORES
Inventories ($thousands) 4,754 40,894 Sales (net$thousands) 59,217 397,206
COGS ($thousands) 52,762 326,606 Assume that both companies have an average annual holding cost rate of 20% costs both retailers$2 to hold an item that they procured for $10 for one entire year. a. How many days, on average does a product stay in Dirt Cheap’s inventory before it is sold? Assume that stores operate 365 days a year. b. Consider a household cleaner, sold by both Dirt and Kwiki-Mart, valued at$5 COGS. How much lower (expressed in $’s) is, on average, the inventory cost for Dirt Cheap compared to Kwiki-Mart for this product? Answers (1) • April 14, 2023 в 20:47 a. To calculate the number of days a product stays in Dirt Cheap's inventory before it is sold, we need to use the inventory turnover formula: Inventory turnover = Cost of goods sold / Average inventory We can calculate the average inventory by adding the beginning and ending inventory levels for Dirt Cheap and dividing by 2: Average inventory = (Beginning inventory + Ending inventory) / 2 = (4,754 + X) / 2 We know that the cost of goods sold for Dirt Cheap is$52,762. Using the inventory turnover formula, we can solve for X: Inventory turnover = $52,762 / [(4,754 + X) / 2] = 11.1 (rounded to one decimal place) Inventory turnover is the number of times a company sells and replaces its inventory in a given period. To convert this into the number of days a product stays in inventory, we need to divide the number of days in a year by the inventory turnover: Days in inventory = 365 days / Inventory turnover = 33 days (rounded to the nearest whole number) Therefore, on average, a product stays in Dirt Cheap's inventory for 33 days before it is sold. b. To calculate the inventory cost difference between Dirt Cheap and Kwiki-Mart for the household cleaner, we need to use the same inventory turnover formula to find the average inventory levels for the product at both companies: Dirt Cheap: Average inventory = (4,754 + X) / 2 Kwiki-Mart: Average inventory = 40,894 / 2 = 20,447 We know that the cost of goods sold for the household cleaner is$5 for both companies. Using the inventory turnover formula for each company, we can solve for X and Y: Dirt Cheap: 11.1 = $52,762 / [(4,754 + X) / 2] X =$438 (rounded to the nearest dollar) Kwiki-Mart: 12.1 = $326,606 / 20,447 Y =$6,036 (rounded to the nearest dollar) The inventory cost for Dirt Cheap is the average inventory multiplied by the holding cost rate and the holding period for the product (which we calculated in part a): Inventory cost for Dirt Cheap = ($438 / 2) * 0.20 * 33 =$726 (rounded to the nearest dollar) The inventory cost for Kwiki-Mart is the average inventory multiplied by the holding cost rate and the holding period for the product: Inventory cost for Kwiki-Mart = ($6,036 / 2) * 0.20 * 33 =$9,977 (rounded to the nearest dollar) The difference in inventory cost between Dirt Cheap and Kwiki-Mart for the household cleaner is: $9,977 -$726 = $9,251 (rounded to the nearest dollar) Therefore, on average, the inventory cost for the household cleaner is$9,251 lower for Dirt Cheap compared to Kwiki-Mart.