Baktoo Basics Ltd. is considering introducing an inventory control system that will increase inventory turnover from 10
Question:
Baktoo Basics Ltd. is considering introducing an inventory control system that will increase inventory turnover from 10 to 15 times per year. Its annual cost of goods sold is expected to be $6 million, and its financing costs are at 11 percent. Should Baktoo Basics consider an expenditure of $17,500 on the new control system?
Step by Step Answer:
Existing inventory investment 600000010 600000 New system inventory investment 6...View the full answer
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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