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Inventory and Turnover Ratio

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Ohio Valley Homecare suppliers, Inc, had $20 million in sales in 2004. Its cost of goods sold was $8 million and its average inventory balance was $2,000,000

The inventory turnover ratio for Ohio Valley Homecare Suppliers (OVHS) in 2004 is
a. 2x
b. 3x
c. 4x
d. 5x
3. 6x

The average days of inventory in the industry is 73 days. By how much would OVHS reduce its investment (inventory balance) if it could improve its inventory days (outstanding days) to meet
the industry average (73 days)
a. $2,000,000
b. $2,400,000
c. $1,600,000
d. $400,000
e. $800,000

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Solution Summary

The expert calculates an inventory turnover ratio based on inventory balance, cost of goods sold, and sales. How a company can reduce its investment balance with a new average days of inventory is determined.

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