Apparel Retailer A large catalog retailer of fashion apparel

(Apparel Retailer) A large catalog retailer of fashion apparel reported $100,000,000 in revenues over the last year. On average, over the same year, the company had $5,000,000 worth of inventory in their warehouses. Assume that units in inventory are valued based on cost of goods sold (COGS) and that the retailer has a 100 percent markup on all products.

How many times each year does the retailer turn its inventory?

The company uses a 40 percent per year cost of inventory. That is, for the hypothetical case that one item of $100 COGS would sit exactly one year in inventory, the company charges itself a $40 inventory cost. What is the inventory cost for a $30 (COGS) item? You may assume that inventory turns are independent of the price.

Solution

Inventory =   Cost of Goods Sold /   Average Inventory

=$50,000,000 / $5,000,000

=10 times turnover

COGS EXPLANTION:

COGS = $50,000,000

Retail price =$100,000,000 is 100 percent markup on all products, becomes 50% of Gross margin

COGS =Sales revenue -Gross margin

=$100,000,000   - $50,000,000

=$50,000,000

Gross marginCalclualtion

=$100,000,000 * 50/100=$50,000,000.

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COGS $30 per item + $30

=$60

selling price of the Inventory Explanation

In this case, we have 100% mark of all products, 50% gross profit is declared, as per formula, sales Inventory =Cogs+Profit
so $30 is COGS the same amount will considered for Gross margin=$30

Sales inventory = COGS + Gross margin

$30 + $30 =$60

do the cross check, know we get $60 is sales inventory= $30 is COGS

Gross margin = Sales -COGS= $60 - $30 = $30

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