turns are independent of the price Q2 Costco vs Walmart The

turns are independent of the price.

Q2.           (Costco vs. Walmart) The following table shows financial data (year 2004) for Costco Wholesale and Walmart, two major U.S. retailers.

Costco

Walmart

Inventories

Sales (Net)

COGS

($ Millions)

$3,643

$48,106

$41,651

($ Millions)

$29,447

$286,103

$215,493

Assume that both companies have an average annual holding cost rate of 30 percent (i.e., it costs both retailers $3 to hold an item that they procured for $10 for one entire year).

a. How many days, on average, does a product stay in Costco’s inventory before it is sold? Assume that stores are operated 365 days a year.

b. How much lower is, on average, the inventory cost for Costco compared to Walmart of a household cleaner valued at $5 COGS? Assume that the unit cost of the household cleaner is the same for both companies and that the price and the inventory turns of an item are independent.

Solution

Solution :

a) Inventory turnover for Costco\'s = cost of goods sold / average inventory

Inventory turnover for Costco\'s = $ 41,651 / $ 3,643

Inventory turnover for Costco\'s = 11.43

b) Question b requires more data like the ordering cost , to answer .