Inventory Decisions During 2000, the management of Getz Furniture Manufacturing Company decided that too much money was tied up in inventory. Most of Getz’s furniture is manufactured based on advance orders, and the amount of raw materials and other supplies needed can be determined in advance. A corporate program was started early in 2001 to coordinate the sales staff, production schedulers, suppliers, and shipping companies to reduce the need for keeping large amounts of inventory on hand by having it delivered to the manufacturing plant no sooner than two days before it is to be used. Shipments to customers are to be made within one week of completion of the furniture. Now, at the end of 2001 you are evaluating Getz to decide whether the program was successful and whether there were any unexpected costs. If the program worked, you are going to try it in your company. You have gathered the following information from Getz’s financial statements.

a. Will you recommend a similar program for your company? Why or why not? In your analysis, consider at a minimum the inventory turnover in total and for each type of inventory, gross margin percentages, and total sales.

b. If Getz had reported that its volume of sales remained at 2000 levels in 2001 and that raw materials purchases declined almost 20 percent, would your recommendation change? Explain.

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Inventory: Raw materials Work-in-process Finished goods Total Sales Cost of goods sold 2000 $ 435,000 85,000 365,000 $ 885,000 3,355,000 2,355,000 2001 $ 400,000 185,000 35,000 $ 620,000 3,000,000 2,250,000