waleed khan

7/29/2019 WAleed Khan

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In accounting, the Inventory turnover is a measure ofthe number of times inventory is sold or used in a timeperiod such as a year. The equation for inventoryturnover equals the Cost of goods sold divided by theaverage inventory. Inventory turnover is also known asinventory turns, stock turn, turns, and stock turnover.
http://en.wikipedia.org/wiki/Accountancyhttp://en.wikipedia.org/wiki/Equationhttp://en.wikipedia.org/wiki/Cost_of_goods_soldhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Cost_of_goods_soldhttp://en.wikipedia.org/wiki/Equationhttp://en.wikipedia.org/wiki/Accountancy


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A retailer holds $600,000 worth of socks in

inventory January 1,and $800,000 the followingDecember 31.Revenues generated by socks salestotaled $3.5 million during the year.

To estimate average socks inventory during the

year, managers might take the average of thebeginning and endingnumbers($600,000+$800,000)/2=$ 700,000average inventory. On the basis, managers mightcalculate inventory turns as follows:


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product revenuesInventory turns= ------------------------------

Average inventory

$3,500,000= --------------------------------= $5

$700,000

If inventory turns five time per year, this figure canbe converted to inventory days in order to measurethe number of average of days worth of stock held inthe period.

days in year(365)Inventory Days=--------------------------------

inventory turns365

=------------=73 Days worth of inventory

5


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Markdown refers to a discount on a product. For example, aproduct may be originally priced at $150, but during a sale,the product is marked 25 percent off to attract moreconsumers. You can determine the sale price once you knowwhat the markdown is. Calculating the markdown andanalyzing how the profits are affected will help youdetermine the best pricing strategy for your product. Thiswill ultimately help you manage your business better andmaintain profitability. Learn how to calculate markdownwith the simple formula below.


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Markdown ($) = Initial Price of SKU($) - Actual Sales Price($)

Markdown($)

Markdown (%) = -------------------------------------

Initial Price of SKU ($)


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Gross Margin Return on Inventory Investment (GMROII) is a

ratio in microeconomics that describes a seller's income onevery unit of currency spent on inventory. It is one way todetermine how valuable the seller's inventory is, and describesthe relationship between total sales, total profit from total sales,and the amount of resources invested in the inventory sold. A

seller will aim for a high GMROII. The GMROII answers thequestion "for each unit of currency at cost, how many units ofcurrency of gross profit will I generate in one year?" GMROII istraditionally calculated by using one year's gross profit.

Gross margin on product salesin period ($)

GMROII(%) = ------------------------------------------------

Average inventory value at cost ($)
http://en.wikipedia.org/wiki/Microeconomicshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Microeconomics


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Direct Product Costs:There are the costs of bringing product to customers.They generally include ware houses ,distribution andstore costs.Direct product costs($)= warehouses direct costs ($)+

transportation direct costs($)+store direct costs($)

Direct Product Profitability(DPP):Measurement of the direct costs associated

with handling a product from the warehouse until acustomer buys from the retail store.


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The retailer cited earlier wants to probe furtherinto the profitability of its sock line. Towards

that end ,it assemble the following information.For this retailer ,sock generate slottingallowances ---in essence ,fees paid by themanufacturer to the retailer in compensation

for shelf space---in the amount of $50,000 peryear. Warehouse costs for the retailer come to$10,000,000 per year. Socks consume 0.5% ofwarehouse space .Estimated store and

distribution costs associated with sock total$80,000.


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Adjusted Gross margin = Gross margin + Additional Margin = $350,000 + $ 50,000

= $400,000

Direct Product Costs = Store and distribution costs +Warehouse costs

=$80,000 +(0.5% *$10,000,000)

=$130,000

DPP =Adjusted Gross Margin direct product costs

= $400,000 -$130,000

= $270,000.


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