2. Inventory

Consider the following case:

Midwest Holdings Inc. produces keyboard synthesizer workstations used in the production of movie sound effects. Until recently, they manufactured products in anticipation of sales orders based on historical data, which led to significant inventory stockpiling. Their average annual sales are $150 million, and their inventory turnover ratio is currently 5.0.

If Midwest Holdings Inc. were to adopt a new inventory management system that allowed component parts to be delivered mere hours before they were required for assembly, the company would increase its inventory turnover ratio to 8.0.

What would the annual reduction in inventory be if the company adopted this system?

$11.2 million

$12.5 million

$10.0 million

$26.0 million

The type of inventory management Midwest Holdings Inc. is considering is called ________ .