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A corporation is projecting annual sales at S35 million, cost of goods sold (COGS) at S25 million, and administrative expenses at $3 million. In order to meet its corporate inventory turns goal of 5.0, their inventory level must average:
Suggested Answer: D
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29 comments · newest first
YE
Yesenia
10 months ago
Wait, how did they come up with that number? Seems off.
FL
Florinda
10 months ago
Definitely $7 million, no doubt about it.
JA
Jarvis
10 months ago
I think it’s actually $5 million. Sounds right to me!
DE
Derrick
10 months ago
Just to clarify, COGS is $25 million and sales are $35 million.
ST
Stacey
10 months ago
The average inventory level should be $7 million to hit those turns.
MI
Ming
11 months ago
I feel like I might be overthinking this. Wasn't there something about COGS being relevant too? I hope I don't mix that up!
JO
Josephine
11 months ago
If I remember correctly, the formula is sales divided by inventory. So, I guess we need to figure out the average inventory to meet the 5.0 turns.
SA
Samira
11 months ago
I think we practiced a similar question where we used the formula for inventory turns, but I can't recall the exact numbers we used.
LO
Lore
11 months ago
I remember we calculated inventory levels based on sales and turns, but I'm not sure how to apply it here.
LE
Leatha
12 months ago
Okay, I think I've got it. The key is to use the inventory turns formula: Inventory Turns = COGS / Average Inventory. Rearranging, we get Average Inventory = COGS / Inventory Turns. Plugging in the values, we get $25 million / 5.0 = $5 million. Option B is the answer.
MI
Milly
12 months ago
I'm not sure about this one. The question mentions administrative expenses, but I'm not sure how that factors into the inventory calculation. I'll need to think through the logic more carefully before selecting an answer.
DA
Dannie
12 months ago
This looks straightforward. If the inventory turns goal is 5.0 and the COGS is $25 million, then the average inventory level must be $25 million / 5.0 = $5 million. I'm confident that option B is the correct answer.
SH
Shonda
1 year ago
Hmm, I'm a bit confused on how to calculate the average inventory level from the information provided. I'll need to review the inventory turns formula and work through the math carefully.
BA
Barbra
1 year ago
Okay, let's think this through step-by-step. We need to find the average inventory level that would meet the corporate inventory turns goal of 5.0, given the projected annual sales and COGS.
JA
Jamal
1 year ago
I'm going with A) $4.4 million. It's the lowest number, so it must be the right answer. Plus, who wants to deal with all that extra inventory anyway? I say, the less the better!
CA
Cathrine
1 year ago
Wait, is this a trick question? I bet the answer is C) $7 million. Why? Because the corporation is clearly trying to game the system and keep their inventory levels artificially high. Gotta love corporate accounting tricks!
MA
Maybelle
1 year ago
I agree with you, the answer is definitely not C) $7 million. It's important to keep inventory levels in check.
EM
Emily
1 year ago
I think the answer is actually A) $4.4 million. The inventory level needs to be lower to meet the goal.
GE
Gearldine
1 year ago
D) $7.6 million looks like the correct answer to me. If the annual COGS is $25 million and the inventory turns goal is 5.0, then the average inventory level should be $25 million / 5.0 = $5 million. But they're probably rounding that up to $7.6 million to be on the safe side.
JA
Janessa
1 year ago
That's true, better to have a buffer than risk falling short. $7.6 million it is.
CH
Chanel
1 year ago
Yeah, it makes sense to round up to be safe. $5 million is the average, but $7.6 million ensures they meet their goal.
HO
Hollis
1 year ago
I think you're right, $7.6 million seems like the correct answer based on the calculations.
LE
Lennie
1 year ago
I agree with Christoper, the answer is B) $5 million because it meets the inventory turns goal of 5.0.
GI
Gilma
1 year ago
I disagree, I believe the answer is C) $7 million.
CH
Christoper
1 year ago
I think the answer is B) $5 million.
GA
Gayla
1 year ago
I think the answer is B) $5 million. The corporation's inventory level must be set to achieve the desired inventory turns goal of 5.0, which means the average inventory level should be one-fifth of the annual COGS, which is $25 million. So $5 million seems like the right answer.
ST
Stefania
1 year ago
Yes, $5 million is the average inventory level needed to meet the corporate inventory turns goal of 5.0.
GE
Gerald
1 year ago
That makes sense, $5 million is the right answer to achieve the desired inventory turns goal of 5.0.
RE
Reita
1 year ago
I agree, the inventory level should be one-fifth of the annual COGS, which is $25 million. So $5 million seems correct.