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Kaushik Dutta

· started a discussion

· 1 Months ago

explain (Question: 187303.0 )

please explain the question

Question:
A firm's inventory turnover (IT) is 5 times on a cost of goods sold (COGS) of $800,000. If the IT is improved to 8 times while the COGS remains the same, a substantial amount of funds is released from or additionally invested in inventory. In fact,
Options:
A) $160,000 is released.
B) $100,000 is additionally invested
C) $60,000 is additionally invested.
D) $60,000 is released.
E)

None of these

Solution:

Ans (d)

Abhinav Sinha

· commented

· 1 Months ago

@Kaushik:
IT= 5= $800,000/ Inventory (old)
Therefore, Inventory (old) = $800,000/5 =$ 1,60,000

IT=8= $800,000/ Inventory (new)
Therefore, Inventory (new)= $800,000/8 =$100,000

Therefore
$160,000-$100,000=$60,000 released (i.e. source of funds)
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