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The Gift Shoppe’s inventory turned over five times during the year. Similar gift shops have an inventory turnover equal to ten times per year. What explains the Gift Shoppe’s inventory management?
a.The Gift Shoppe needs to increase sales and decrease the amount of goods on hand.
b.The Gift Shoppe should increase the amount of goods on hand to accommodate the additional inventory demand.
c.The Gift Shoppe sold too much inventory during the year.
d.The Gift Shoppe is performing twice as well as it competitors.
Expert Answer
a.The Gift Shoppe needs to increase sales and decrease the amount of goods on hand.
Inventory turnover = Sales or COGS/ Avg Inventory
Higher the inventory turnover better is the performance….Since Gift shoppe is having lower inventory turnover it means it has to increase numerator i.e. sales and decrease denominator i.e. inventory
