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 ?
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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