Question

Ohio valley homecare suppliers, incorporated (ovhs) had $19 million in sales in 2015. its cost of goods sold was $7.6 million, and its average inventory balance was $1.6 million. Please pay attention to the rounding requirements.

Ohio Valley Homecare Suppliers, Incorporated (OVHS) had $19 million in sales in 2015. Its cost of goods sold was $7.6 million, and its average inventory balance was $1.6 million. a. Calculate the number of inventory days outstanding for OVHS. b. The average number of inventory days in the industry is 73 days. By how much would OVHS reduce its investment in inventory if it could improve its inventory days to meet the industry average? a. Calculate the number of inventory days outstanding for OVHS. The number of inventory days is days. (Round to the nearest integer.) b. The average number of inventory days in the industry is 73 days. By how much would OVHS reduce its investment in inventory if it could improve its inventory days to meet the industry average? OVHS would reduce its inventory by $. (Round to the nearest dollar.)

Answer 1

(a) Sales = $19 million

Cost of Goods Sold = $7.6 million

Average Inventory = $1.6 million

Days Inventory Outstanding (DIO) = 365/(Cost of Goods Sold/Average Inventory) = 365/(7.6/1.6) = 76.84 days = 77 days

(b) Average Inventory Days in Industry = 73 days

=> 73 = 365/(Cost of Goods Sold/Required Average Inventory)

=> 73 = 365/(7.6/Required Average Inventory)

=> Required Average Inventory = 73*7.6/365 = $1.52 million

Hence, Reduction required = 1.6 - 1.52 = $ 0.08 million = $80,000