UNIT 7 - Inventory Turnover

Question 1

what type of ratio

Answer 1

efficiency

Question 2

measures

Answer 2

how quickly and efficently able to convert inventory into sales/revenue

Question 3

inventory is

Answer 3

stock

Question 4

formula

Answer 4

COS/avg inventory held

Question 5

what does number mean in inventory turnover

Answer 5

of times in one year bs sells its inventory

Question 6

if a bs has sold inventory turnover of 12 what does this mean

Answer 6

bs has sold inventory 12 x in one year

or

once a month

Question 7

COS is

Answer 7

direct costs involved in prodcuing g/s

Question 8

where do we find COS

Answer 8

Income statement

Question 9

where do we find avg invenotry

Answer 9

extract

or

balance sheet

Question 10

the higher the inventory turnover

Answer 10

the better

Question 11

a higher inventory turnover suggest

Answer 11

converted stock into sales/revenue quickly

Means got less cash tied up in inventory

so you’re financially efficient

Question 12

how can you obtain higher inventory turnover

Answer 12

JIT lean production

Question 13

how does JIT help obtain higher inventory turnover

Answer 13

brings down avg inventory held making whole inventory turnover ratio number higher

Question 14

why is a low / reducing inventory number bad

Answer 14

stock is not selling so can indicate marketing issue

stock obsolete/out of date therefore a lot of waste as cash still tied up in stock

Question 15

but why could low inventory turnover number not be bad

Answer 15

bs has decided to move away from JIT to JIC -

Question 16

why might a bs has decide to move away from JIT to JIC -

Answer 16

enets like BREXIT , COVID

bs concerned w supply chains so to be safe and manage sudden demand increases or just demand move to JIC to secure/strengthen supply chain

so may lead to IT# lwoering as holding more avg inventory making bottom bigger so whole calc smaller

Question 17

diff industries have

Answer 17

diff inventory turnovers and different targets

Question 18

give 2 conditions as to why bs has low inventory turnover

Answer 18

use JIC

Wide product range suggests avg inventory held large so have lower inventory turnover

Question 19

2 conditions when you’d have high inventory turnover

Answer 19

perishable product

use JIT

narrow product range as suggests avg inv held low do have higher inventory turnover

Question 20

why might high inventory turnover not be a good thing

Answer 20

bs may reduce prices to give high inventory turnover

but

may mean bbs has lower net profit margin which might not be good for bs