By increasing the number of times the inventory is turned over each year, Moore will decrease the amount of inventory that is being held at any one point in time. Currently, with inventory being turned over 9 times a year, the average inventory balance is $4,000,000 ($36 million ÷ 9). If the inventory turnover is increased to 12 times, the average inventory will be $3,000,000. The extra million dollars that would not be invested in inventory would be available for other uses and with an 8% interest rate, will provide Moore with a cost savings of $80,000 by not having $1 million tied up in inventory.
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This answer is incorrect because it bases the calculation on the sales amount, not the cost of goods sold figure. See the correct answer for a complete explanation.
This is not the correct answer. Please see the correct answer for a complete explanation. We have been unable to determine how to calculate this incorrect answer choice. If you have calculated it, please let us know how you did it so we can create a full explanation of why this answer choice is incorrect. Please send us an email at support@hockinternational.com. Include the full Question ID number and the actual incorrect answer choice -- not its letter, because that can change with every study session created. The Question ID number appears in the upper right corner of the ExamSuccess screen. Thank you in advance for helping us to make your HOCK study materials better.
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