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Haberdash inc. last year reported sales of $12 million and an inventory turnover ratio of 3. the company is now adopting a just-in-time inventory system. if the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 7.5, while maintaining the same level of sales, how much cash will be freed up?

Respuesta :

Sales = $12,000,000

Inventory Turnover ratio (old) = 3
Inventory Turnover ratio (new) = 7.5
Freed up Cash = ?
So, let’s find out the freed up cash
We know level of inventory are calculated as follows;
Inventory = Sales Inventory turnover ratio
Calculating $ value of old inventory
Inventory Old=$12,000.0003
                          =$7.5,000,000
  Calculating $ value of New inventory
Inventory New=$12,000,0075
                         =$3,000,000
The freed up cash would be=Old Inventory – New Inventory
=$7.5,000,000 - $3,000,000
=$4.5,000,000
tifanihayyu

If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 7.5, while maintaining the same level of sales, the cash that will be freed up is: a. $2,400,000.

Further explanation

A haberdasher is a person who sells small articles for sewing, such as buttons, ribbons and zippers in the United Kingdom. Whereas in the United States, the haberdasher refers instead to a retailer who sells men's clothing, including suits, shirts, and neckties.

Haberdash inc. last year reported sales of $12 million and an inventory turnover ratio of 3. the company is now adopting a just-in-time inventory system.

[tex]Inventory turnover ratio_{Old} = \frac{Sales}{Inventory}[/tex]

[tex] 3 =\frac{12,000,000}{I}[/tex] dollar

[tex] 3I = 12,000,000[/tex] dollar

[tex]  I = 4,000,000[/tex] dollar

[tex]Inventory turnover ratio_{New} = \frac{Sales}{Inventory}[/tex]

[tex] 7.5 = \frac{12,000,000}{I}[/tex] dollar

[tex] I = \frac{12,000,000}{7.5}[/tex] dollar

[tex]I = 1,600,000[/tex] dollar

Cash freed up = $4,000,000 – $1,600,000 = $2,400,000.

So, If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 7.5, while maintaining the same level of sales, the cash that will be freed up is: a. $2,400,000.

Learn more

  1. Learn more about Haberdash https://brainly.com/question/9103758
  2. Learn more about inventory system https://brainly.com/question/10574659
  3. Learn more about the company https://brainly.com/question/3156992

Answer details

Grade:  9

Subject:  business

Chapter:  sales

Keywords:  

Haberdash, cash, sales, the company, inventory system

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