solve this one for me please

problem on inventory management -

 

Q >> A company has forecast sales and cost of sales for the coming year as Rs.25 lacs and Rs.18 lacs respectively.The inventory turnover has been taken as 9 times per year.In case th inventory turnover increases to 12 times and the short term interest rate on working capital is taken as 10%, what will be the saving in cost ?

 

Ans - savings will be rs.5000

 

Now can anyone let me knw of the solution ?

 

Replies (2)

Inventory Turnover Ratio = Cost Of Goods Sold/Avg.Stock     

                          

    9                                       =           18.00/Avg.Stock

Avg.stock = 2.00 lacs

          12                                  =            18.00/Avg.Stock 

Avg.Stock = 1.50 lacs

 

Reduction in Stock Level = 50000

Savings = 50000 * 10% = 5000/-

given inventory turnover 9 times a year,

total cost = 18 lks

average stock level =18/9=2 lks

carrying cost = 2 lks*10/100=20000

if inventory turnover is 12 times ,average stock level =18/12=1.5 lks

carrying cost = 1.5*10/100=15000

incrimental savings = 5000

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