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17. U.S. Airfilter has hired you as a supply chain consultant. The company makes air filters for residential heating and air-conditioning systems. These filters are made in a single plant located in Louisville, Kentucky, in the United States. They are distributed to retailers through wholesale centers in 100 locations in the United States, Canada, and Europe. You have collected the following data relating to the value of inventory in the U.S. Airfilter supply chain: Quarter 1 January through March) Quarter 2 (April through June) Quarter 3 July through September) Quarter 4 (October through December) Sales (total quarter): United States Canada Europe 300 75 30 405 75 20 375 70 15 350 60 Cost of goods sold (total quarter) 280 295 340 350 50 40 60 Raw materials at the Louisville plant (end-of-quarter)
Expert Answer
Inventory of quarter 1 = (50 + 100 + 25+10+5) = 190
Inventory of quarter 2 = (40 + 105 + 27+11+4) = 187
Inventory of quarter 3 = (55 + 120 + 23+15+5) = 218
Inventory of quarter 4 = (60 + 150 + 30+16+5) = 261
Average Inventory = (190 + 187 + 218 + 261)/4 = 214
Annual Cost of Goods Sold = 280 + 295 + 340 + 350 = 1265
a) Average inventory turnover for the firm = 1265/214 = 5.91
b) I would focus on reducing the Work in process inventory , because that contributes maximum to the inventory. By reducing the WIP, average inventory level will reduce and therefore inventory turnover will increase.
c) Average raw material inventory = (50+40+55+60)/4 = 51.25
Weeks of supply of raw material on hand at the factory = (51.25/500)*52 = 5.33 weeks
