The McDonald's fast-food restaurant on campus sells an average of 4,000 quarter-pound hamburgers each week. Hamburger patties are resupplied twice a week, and on average the store has 350 pounds of hamburger in stock. Assume that the hamburger patties cost $1.00 a pound. Required: a. What is the inventory turnover for hamburger patties? b. On average, how many days of supply are on hand?
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To calculate the inventory turnover for hamburger patties, we use the formula:
Inventory Turnover = Cost of Goods Sold / Average Inventory
First, we need to find the cost of goods sold (COGS). COGS is the amount spent on hamburger patties that were sold during the period.
The number of hamburgers sold per week = 4,000 hamburgers
Each hamburger weighs a quarter pound, so the total pounds of hamburger sold per week = 4,000 hamburgers * 0.25 pounds = 1,000 pounds
Since the store resupplies twice a week, the total pounds of hamburger used in a week = 1,000 pounds * 2 = 2,000 pounds
Now, let's calculate the cost of goods sold:
Cost of Goods Sold (COGS) = Total pounds of hamburger used * Cost per pound
COGS = 2,000 pounds * $1.00 = $2,000
The average inventory is given as 350 pounds.
a. Inventory Turnover for hamburger patties:
Inventory Turnover = COGS / Average Inventory
Inventory Turnover = $2,000 / 350 pounds ≈ 5.71
b. To find the average days of supply on hand:
Average Days of Supply = 7 days (in a week) / Inventory Turnover
Average Days of Supply = 7 days / 5.71 ≈ 1.22 days
Therefore:
a. The inventory turnover for hamburger patties is approximately 5.71.
b. On average, there are approximately 1.22 days of supply on hand.