Inventory turnover = $1,000 (4,000 quarter pound burgers at $1 per pound) / $350 (350 pounds of hamburger in stock) = 2.85
Weeks of supply = average aggregate inventory value / cost of goods sold x 52 weeks
Days of supply = average aggregate inventory value / cost of goods sold x 7
Days of supply = 350 / $.25 x 52 = 72,800 / 52 = 1400 patties = approximately 2.8 days of supply.
AnswerThis question is a prime example of the need to Reduce The Problem To The Minimum. All that math above? We used it at Home Depot for reporting to corporate...but you had to, because a Home Depot contains between 40,000 and 50,000 SKUs, my Home Depot carried inventory with book value of over $8 million, and we calculated turns for the whole store. In this case, we're selling one SKU--quarter-pounders.When you're working with a single SKU, you need two pieces of information to calculate turns and days of supply--inventory level and sales rate.
Our restaurant sells 1000 pounds of hamburger per week, or 142.875 pounds per day. It keeps 350 pounds of it in stock. Therefore:
turns: amount sold per week / stock level, or 1000 / 350 = 2.857 per 7-day week, 11.428 per 28-day month, 148.571 per 52-week year.
days of supply: stock level / stock sold per day, or 350 / 142.875 = 2.45 days of supply.
Please note that in this case, price doesn't enter into it except in a very indirect way--if you pay $20/pound for your hamburger you're not going to sell very many Sandwiches.
The next question is, is maintaining a multiple-day inventory of a perishable good an advantage to your business if you have a reliable source of supply? The answer is, almost certainly not. Hamburger doesn't keep. If the guy from the meat company shows up at your back door every morning at 9 am, seven days a week, there's no reason to keep in the restaurant more than a day's supply of meat. You determine what that is by evaluating your sales history each day for the last three months. (One full quarter should be plenty.) If on Tuesday you sell 150 pounds for seven of the last 12 weeks, 165 pounds for four weeks and 138 pounds for the last week, I would take the 150 pounds, add 10 percent to it (giving you 165), and put in a standing order with the meat company to have 165 pounds delivered every Tuesday. If you have any left over, make chili for tomorrow out of it; if you get within 10 pounds of running out you send someone to the closest supermarket. And you do the same analysis for the other six days of the week.
Inventory turnover = Cost Of Goods Sold = Average Aggregate Inventory Value Inventory turnover = 4000/4 = 1000 1 Weeks of Supply = Average Aggregate Inventory Value = Cost Of Goods Sold Weeks of Supply = 4000/4 = 2.86 Days 350
Inventory turnover is the standard at which product inventory is acquired or made and further sold within a year. An assessment of all inventory-related business factors will have an impact on inventory turnover.
Generally inventory turnover period is calculated as: Sales/Inventory Also by, Cost of Goods Sold/ Average Inventory
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory and Average Inventory = ( Beginning Inventory + Ending Inventory ) / 2
The annual inventory turnover in the retail painting industry is obtained by dividing the Annual Cost of Sales by the Average Inventory Level. A low inventory turnover ratio is a signal of inefficiency.
prophitability
To calculate the inventory turnover ratio, you need to divide the cost of goods sold by the average inventory. To find the average inventory, add the beginning and ending inventory levels and divide by 2. In this case, the average inventory is (4500 + 5500) / 2 = 5000. The inventory turnover ratio would be 20000 / 5000 = 4.
ending inventory
An aircraft company will incur low inventory turnover if the stock is purchased as bulk and demand is low, thus slow discharge of inventory.
cost of goods sold/ Average inventory
Higher Rates
Number of days inventory in hand tells about how many day's inventory is available while inventory turnover tells about how many times in a fiscal year inventory is used to convert to finished goods for sale.