Welcome to this article with the aim of helping you with 11 corrected exercises on Stock and Supply Management from the Operational Management subject of the BTS MCO.
If you would like to first review the course on the same theme, Inventory Management, I invite you to read my article Inventory Management: The 7 Key Points to Master and also the article Supply Management: The 3 essential principles.
In this section:
- App: ABC Superstore
- Application: La Boulangerie des Deux Ponts
- Application: WaveOptics Company
- Application: Lafleur Company
- Application: Durand Company
- Application: GogoElectronic Store
- Application: House of Briefs and Underpants
- Application: Luminaris Company
- Application: Cosmetics company Zalea Beuty
- App: SuperMarket
- Application: TechCenter Company
App: ABC Superstore
States :
The ABC supermarket is renowned for its efficient inventory management. However, last year there appear to have been difficulties with stock management of breakfast cereals. The figures recorded are as follows:
– Initial stock of cereals on January 1: 2000 units
– Purchases made during the year: 15000 units
– Sales made during the year: 13000 units
Work to do :
1. Calculate the final stock of cereals?
2. Calculate the average stock of cereals?
3. Determine the cereal inventory turnover ratio?
4. How many days on average do cereals remain in stock?
5. How could the company improve its cereal inventory management?
Proposed correction:
1. Ending inventory is equal to beginning inventory plus purchases for the year minus sales for the year. So, the ending stock is 2000 + 15000 – 13000 = 3000 units.
2. The average stock is equal to the beginning stock plus the ending stock divided by 2. Therefore, the average stock for cereals is (2000 + 3000) ÷ 2 = 2500 units.
3. The inventory turnover ratio is determined by the quotient of sales to average inventory. Then, the inventory turnover ratio is 13000 ÷ 2500 = 5,2. This means that the stock was renewed 5,2 times during the year.
4. The average number of days that grain remains in stock is obtained by dividing 365 by the inventory turnover ratio. Thus, cereals remain on average 365 ÷ 5,2 = approximately 70 days in stock.
5. To improve its management of cereal stocks, the company could try to reduce the average storage time to avoid waste and deterioration. Additionally, better demand forecasting and supply coordination could help align inventories with actual demand.
Summary of Formulas Used:
| Formulas | Explanation |
|---|---|
| Final Stock = Initial Stock + Purchases – Sales | Allows you to calculate the ending stock. |
| Average Stock = (Initial Stock + Final Stock) ÷ 2 | Allows you to calculate the average stock. |
| Turnover Ratio = Sales ÷ Average Inventory | Allows you to calculate the inventory turnover ratio. |
| Average Storage in days = 365 ÷ Turnover Ratio | Allows you to calculate the average number of days that items remain in stock. |
Application: La Boulangerie des Deux Ponts
States :
La Boulangerie des Deux Ponts is a local business that sells different types of bread, pastries and pastries. You are responsible for monitoring and optimizing inventory management.
At the start of the financial year, the stock of flour was 200 kg and cost €1,00/kg. During the year, the bakery purchased an additional 800 kg of flour for a total price of €840,00. At the end of the year, the stock of flour was 220 kg.
The store's annual turnover is €45.
Work to do :
1. Calculate the initial stock in value.
2. Calculate the average purchase price per kg of flour.
3. Calculate the ending stock in value.
4. Calculate the average inventory by value.
5. Calculate the inventory turnover ratio.
Proposed correction:
1. Initial inventory is calculated by multiplying the quantity by the unit price. So, Initial stock = 200 kg x €1,00/kg = €200,00.
2. The average purchasing price per kg of flour is calculated by dividing the total purchasing cost by the total quantity purchased. So, Average purchase price = €840,00 ÷ 800 kg = €1,05/kg.
3. Ending stock is calculated by multiplying the quantity remaining at the end of the year by the average purchase price. So, Final stock = 220 kg x €1,05/kg = €231,00.
4. Average inventory is calculated by averaging the beginning inventory and ending inventory. So, Average Stock = (€200,00 + €231,00) ÷ 2 = €215,50.
5. The inventory turnover ratio is calculated by dividing turnover by average inventory. So, Inventory Turnover Ratio = €45 ÷ €000,00 = approximately 215,50.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| Initial stock | Initial quantity x Unit price |
| Average purchase price | Total cost of purchases ÷ Total quantity purchased |
| Ending stock | Quantity at the end of the year x Average purchase price |
| Average stock | (Initial stock + Final stock) ÷ 2 |
| Inventory turnover ratio | Turnover ÷ Average stock |
Application: WaveOptics Company
States :
WaveOptics, a company specializing in the manufacturing of ophthalmic contact lenses, has an initial stock of 1500 units of lenses at a unit cost of €2,50. During the month of January 2020, it makes 4 supplies as follows: 400 units at €2,50 per unit, 600 units at €2,60 per unit, 300 units at €2,70 per unit and 200 units at €2,80 per unit. Sales for the month of January 2020 are 1800 units.
Work to do :
1. What is the ending stock in quantity and value of the company WaveOptics for the month of January 2020?
2. What is the average inventory of the WaveOptics company for the month of January 2020?
3. What is WaveOptics’ inventory turnover ratio for January 2020?
4. How could WaveOptics improve its inventory and supply management?
5. What does inventory turnover imply for a manager and how could it be optimized?
Proposed correction:
1. Final stock in quantity = initial stock + purchases – sales = 1500 + 1500 – 1800 = 1200 units. In value, for each purchase you must multiply the number of units acquired by the unit acquisition cost: (400 x €2,50) + (600 x €2,60) + (300 x €2,70) + (200 x €2,80) = €1000 + €1560 + €810 + €560 = €3930.
2. Average stock = (initial stock in value + final stock in value) ÷ 2 = (€3750 + €3930) ÷ 2 = €3840.
3. The inventory turnover ratio = Cost of goods sold ÷ Average inventory = (1800 units x €2,50) ÷ €3840 = 1,17 times.
4. WaveOptics could improve its inventory and supply management by optimizing its safety stock, closely monitoring variations in demand and purchasing costs, and adjusting its supplies accordingly.
5. A high inventory turnover ratio indicates rapid inventory turnover, which means the company sells its inventory quickly. This is usually a good sign because it means the business is not carrying excess inventory and frees up storage space, thereby lowering costs. However, a very high ratio can be a symptom of a potential stock shortage. To optimize the ratio, the manager could work to balance inventory with expected demand, using forecasting techniques to accurately estimate future demand levels.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| Ending stock (quantity) | Initial stock + Purchases – Sales |
| Ending stock (value) | Sum of (Quantities purchased x Unit purchase price) |
| Average stock | (Initial stock + Final stock) ÷ 2 |
| Inventory turnover ratio | (Cost of goods sold) / (Average inventory) |
Application: Lafleur Company
States :
The Lafleur company is a gardening and green space creation company. She must manage her stock of plants and materials to respond to her various projects. The company has the following data on one of its references: Hydrangea.
As of January 1, the company had an initial stock of 200 Hydrangeas. Each Hydrangea costs €10 to purchase. During the year, the company purchased 800 for a total cost of €8. At the end of the year, she had 000 Hydrangeas in stock.
Work to do :
1. What is the company’s ending inventory in value?
2. What is the cost of Hydrangeas consumed during the year?
3. How many times did the company renew its inventory during the year (Inventory turnover)?
4. What is the inventory turnover ratio?
5. What is the average stock in quantity and value?
Proposed correction:
1. The final stock is 50 Hydrangeas. To calculate the value of this stock, we multiply the remaining quantity by the unit purchase cost: 50 x 10 = €500.
2. To obtain the cost of Hydrangeas consumed during the year, we subtract the value of the final stock from the value of the initial stock as well as the purchases made during the year:
(200 x 10) + 8 – 000 = €500.
3. The number of times the company has renewed its stock corresponds to the division of annual consumption by the average stock. As we have not yet calculated the average stock, we cannot yet answer this question.
4. Inventory turnover ratio is the average number of days a product remains in inventory before being sold. It is calculated by dividing the number of days of the year (365) by the number of stock rotations. We will only be able to calculate this ratio when we have the number of stock rotations.
5. The average stock quantity is calculated as the sum of the initial stock and the final stock divided by 2: (200 + 50) ÷ 2 = 125 Hydrangeas.
The average stock value is calculated by multiplying the quantity of the average stock by the unit purchasing cost: 125 x 10 = €1.
Now that we have the average stock, we can answer questions 3 and 4:
– Inventory turnover is obtained via the calculation: 9 ÷ 500 = 1. This means that the company renewed its entire stock 250 times during the year.
– The inventory turnover ratio is: 365 ÷ 7,6 = ~48 days.
Summary of Formulas Used:
| Formulas | Meaning |
|---|---|
| Ending stock in value = Remaining quantity x Unit purchasing cost | Allows you to determine the value of the remaining stock at the end of the year |
| Cost of products consumed = (Initial quantity x unit purchase cost) + Purchases for the year – Final stock in value | Allows you to calculate the total value of products that were consumed/sold during the year |
| Average stock quantity = (Initial quantity + Final quantity) ÷ 2 | Allows you to calculate the average number of products present in stock during the year |
| Average stock in value = Average stock in quantity x Unit purchasing cost | Allows you to determine the average value of the stock during the year |
| Inventory turnover = Cost of products consumed ÷ Average stock in value | Allows you to determine how many times the stock was renewed during the year |
| Inventory turnover ratio = 365 ÷ Inventory turnover | Allows you to indicate the average number of days a product remains in stock before being sold |
Application: Durand Company
States :
The Durand company is a company specializing in the distribution of food products. The manager, Mr. Durand, would like to have more details on his inventory management, in particular on these indicators:
– Initial stock for the year 2022: €15
– Purchases made during the year 2022: €75
– Goods sold during the year 2022: €70
Work to do :
1. What is the Durand company’s ending stock for the year 2022?
2. What was the inventory turnover of the Durand company in 2022?
3. What is the inventory turnover ratio for the year 2022?
4. What is the average stock of the Durand company for the year 2022?
5. How can we interpret the level of inventory management and supply of the Durand company in view of the results obtained?
Proposed correction:
1. The ending stock is calculated by taking into account the initial stock, the purchases made during the period and the goods sold during this same period.
Formula: Ending Inventory = Beginning Inventory + Purchases – Cost of Goods Sold
If we apply this formula, the final stock is: €15 + €000 – €75 = €000
2. Inventory turnover is a measure that indicates how many times an inventory is turned over during a given period.
Formula: Inventory turnover = Cost of goods sold ÷ Average inventory
The average stock is found by doing (Initial stock + Final stock) ÷ 2, or (€15 + €000) ÷ 20 = €000.
We obtain: Inventory turnover = €70 ÷ €000? 17.
3. The inventory turnover ratio expresses the liquidity of the inventory, i.e. the number of times the inventory is replaced in a period.
Formula: Turnover ratio = 365 ÷ Inventory turnover = 365 ÷ 4 ? 91,25 days.
4. The average stock already calculated is €17.
5. The level of inventory management at the Durand company is efficient. Indeed, the inventory turnover of 4 indicates that the company renews its inventory approximately 4 times per year, or every 91,25 days. This suggests good inventory management and an effective procurement strategy.
Summary of Formulas Used:
| Spas | Formulas |
|---|---|
| Ending stock | Beginning Inventory + Purchases – Cost of Goods Sold |
| Stock rotation | Cost of goods sold ÷ Average inventory |
| Turnover ratio | 365 ÷ Stock turnover |
| Average stock | (Initial stock + Final stock) ÷ 2 |
Application: GogoElectronic Store
States :
The GogoElectronic store is an electronic devices sales company whose inventory management is of vital importance. Last year, the store started the year with an initial stock of €65 worth of electronics. During the year, he purchased €000 worth of additional inventory. At the end of the year, remaining stocks amounted to €120.
Furthermore, the cost of goods sold during the year was €135.
Work to do :
1. Calculate the company’s ending inventory.
2. Calculate inventory turnover.
3. Calculate the turnover ratio.
4. Calculate the average inventory.
5. What can we conclude about inventory and supply management at GogoElectronic?
Proposed correction:
1. The company's ending stock is equal to the stock remaining at the end of the year, i.e. €50.
2. Inventory turnover is calculated by: Cost of goods sold ÷ average inventory. Here, it is equal to €135 ÷ [(€000 (initial stock) + €65 (final stock)) ÷ 000] = 50 times.
3. The turnover ratio is calculated using the formula: 365 days ÷ inventory turnover. The turnover ratio at GogoElectronic is therefore 365 ÷ 2,45 = 149 days.
4. The average stock is calculated as follows: (Starting stock + ending stock) ÷ 2 = (€65 + €000) ÷ 50 = €000.
5. From the calculations, it is observed that the stock turnover is 2,45 times per year and the turnover ratio is 149 days, which means that on average, the stock is turned over every 149 days. The average stock is €57. These values suggest fairly efficient inventory and supply management because the company manages to sell its inventory approximately 500 times per year.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| Final Stock | Stock remaining at the end of the year |
| Stock rotation | Cost of goods sold ÷ Average inventory |
| Turnover Ratio | 365 days ÷ Stock turnover |
| Average Stock | (Initial stock + Final stock) ÷ 2 |
Application: House of Briefs and Underpants
States :
La Maison du Slips et des Calçons is a retailer that offers a wide selection of women's and men's underwear. Its specialty is briefs and boxer shorts, which account for the majority of its sales.
During the year 2021, it recorded the following data:
– Initial stock of briefs and briefs as of January 1, 2021: 12 units
– Purchases over the year 2021: 30 units
– Sales for the year 2021: 35 units
– Final stock as of December 31, 2021: 7 units
This data represents all transactions for this product category.
Work to do :
1. Calculate the average stock of briefs and boxer shorts for the year 2021.
2. Calculate the stock turnover of briefs and boxer shorts for the year 2021.
3. Calculate the inventory turnover ratio of briefs and boxer shorts for the year 2021.
4. Do we believe that inventory management is effective at Maison du Slips et des Calçons?
5. What sourcing advice could you give to the Maison du Slips et des Calçons?
Proposed correction:
1. The average stock of briefs and boxer briefs for the year 2021 is calculated as follows: (Initial stock + Final stock) ÷ 2 = (12 units + 000 units) ÷ 7 = 000 units.
2. Inventory turnover is calculated as follows: Quantity sold / Average inventory = 35 units / 000 units = 9 times.
3. The inventory turnover ratio is the number of days in the year divided by the inventory turnover: 365 days ÷ 3,68 = 99,18 days.
4. La Maison du Slips et des Calçons has an inventory turnover ratio of 99,18 days. This means that the company resells each pair of briefs on average every 99,18 days, or approximately 3 times per year. Stock rotation therefore seems rather balanced.
5. To further improve inventory management, the company could consider slightly reducing its average inventory without risking stockouts. This would allow it to improve its inventory turnover ratio and free up capital for other investments.
Summary of Formulas Used:
| Calculation | Formulas |
|---|---|
| Average stock | (Initial stock + Final stock) ÷ 2 |
| Stock rotation | Quantity sold / Average stock |
| Inventory turnover ratio | 365 days ÷ stock turnover |
Application: Luminaris Company
States :
The Luminaris company is a manufacturer of LED lights. As a manager, you are in charge of inventory management and the supply of raw materials necessary for production. At the start of 2020, the company had an initial stock of 100 units of LEDs. Throughout the year, it purchased a total of 500 units of LEDs and sold 400 units of LEDs. At the end of the year, the final stock was 200 units of LEDs.
Work to do :
1. Calculate the average stock for the year 2020.
2. Calculate the inventory turnover for the year 2020.
3. Calculate the inventory turnover ratio for the year 2020.
4. Is the company's ending inventory sufficient to cover sales for 2020?
5. Provide a suggestion to improve the company's inventory and supply management.
Proposed correction:
1. The formula to calculate the average stock is (Initial stock + Ending stock) / 2. So, (100 + 200) / 2 = 150. The average stock for the year 2020 is therefore 150 units.
2. The formula for calculating inventory turnover is Cost of Goods Sold / Average Inventory. In this exercise, cost of goods sold equals the number of units sold, which is 400. So, 400 / 150 = 2,67. The inventory turnover for the year 2020 is therefore 2,67.
3. The inventory turnover ratio is the number of days in the year (365) divided by the inventory turnover. So, 365 / 2,67 = 136,71. The inventory turnover ratio for the year 2020 is therefore 136,71.
4. The company's final stock is not sufficient to cover sales for the year 2020. In fact, with 200 units in stock and annual sales of 400 units, the stock only covers half of the company's needs. the year.
5. To improve inventory and supply management, the company could increase its initial stock at the beginning of the year and closely monitor its sales to readjust its purchases accordingly throughout the year.
Summary of Formulas Used:
| Formulas | Description |
|---|---|
| (Initial stock + Final stock) ÷ 2 | Calculation of average stock |
| Cost of goods sold ÷ Average inventory | Calculating Inventory Turnover |
| 365 ÷ Stock turnover | Calculating Inventory Turnover Ratio |
Application: Cosmetics company Zalea Beuty
States :
The cosmetics company Zalea Beuty is seeking to optimize the management of its lipstick stock. The store manager quantifies the stock in number of units. The following data was recorded for the first half of the current year:
– Initial stock: 250 units
– Purchases (distributed evenly over the semester): 2200 units
– Sales over the period: 2000 units
– Final stock (as of June 30): 450 units
Work to do :
1. Calculate the average inventory of the company Zalea Beuty for the first half of the year.
2. Calculate the company's inventory turnover for this period.
3. Determine the inventory turnover ratio.
4. What does the inventory turnover ratio reflect for the Zalea Beuty company?
5. What procurement strategies could the company consider to optimize its inventory management?
Proposed correction:
1. Average inventory is calculated by adding beginning inventory to ending inventory and then dividing the total by two. With the data provided, Zalea Beuty's average inventory is (250 units + 450 units) ÷ 2 = 350 units.
2. To calculate the inventory turnover rate, we divide the sales for the period by the average inventory: 2000 units ÷ 350 units = 5,71. This means that the stock was renewed 5,71 times during the semester.
3. The inventory turnover ratio is obtained by dividing the length of the period studied (here 180 days for a half-year) by the inventory turnover rate: 180 ÷ 5,71 = 31,52. It takes approximately 32 days to sell out of stock.
4. The inventory turnover ratio reasoning indicates the number of days of sale that the average inventory represents. Here, approximately 32 days of sales are represented by the lipstick stock.
5. Based on these figures, Zalea Beuty could consider different sourcing strategies to optimize its inventory management. Stocks renew quickly, so it could be wise to set up more frequent supplies in order to guarantee optimal stock. Furthermore, the company could seek to adjust its ordered quantities according to seasons or trends to avoid stock shortages or overstocks.
Summary of Formulas Used:
| Concept | Formulas |
|---|---|
| Average stock | (Initial stock + Final stock) ÷ 2 |
| Stock rotation | Sales ÷ Average inventory |
| Inventory turnover ratio | Length of period ÷ Stock turnover |
App: SuperMarket
States :
SuperMarket is a company that sells food products. The manager, Mr. Duval, collected the following information from the previous year:
– Initial stock of goods: €60
– Purchases of the year: €120
– Sales of the year: €160
Work to do :
1. Calculate SuperMarket's ending inventory for the previous year.
2. Determine SuperMarket’s inventory turnover for the previous year.
3. Determine the inventory turnover ratio for the previous year.
4. Calculate SuperMarket's average inventory for the previous year.
5. Based on the previous results, evaluate SuperMarket's inventory and supply management.
Proposed correction:
1. Ending inventory = Initial inventory + Purchases – Sales = €60 + €000 – €120 = €000
2. Average stock = (Initial stock + Final stock) ÷ 2 = (€60 + €000) ÷ 20 = €000
Inventory turnover = Cost of goods sold ÷ Average inventory = €120 ÷ €000 = 40
3. Turnover ratio = 365 ÷ Inventory turnover = 365 ÷ 3 = 122 days
4. The average stock has already been calculated in step 2, it is €40.
5. The inventory turnover ratio is 122 days, this means that it takes SuperMarket approximately 122 days to sell all of its inventory. Additionally, with an inventory turnover of 3, this indicates that SuperMarket sold its inventory equivalent 3 times during the year. These indicators can suggest good inventory management, but it also depends on the specificities of the food sector, the level of demand and the effectiveness of the replenishment threshold.
Summary of Formulas Used:
| Spas | Formulas |
|---|---|
| Ending stock | Initial stock + Purchases – Sales |
| Stock rotation | Cost of goods sold ÷ Average inventory |
| Turnover ratio | 365 ÷ Stock turnover |
| Average stock | (Initial stock + Final stock) ÷ 2 |
Application: TechCenter Company
States :
TechCenter is a computer hardware sales company. Able to improve its inventory and supply management, it has identified the following information regarding a specific product for the past year:
– Initial stock at the start of the year: 400 units.
– Purchases made during the year: 3600 units.
– Sales made during the year: 3500 units.
– Final stock at the end of the year: 500 units.
Work to do :
1. What is the average stock of this item for the past year?
2. What is the inventory turnover for this item for the past year?
3. What is the inventory turnover ratio of this item?
4. Based on this information, what should the optimal supply level have been for this item?
5. Given its current inventory and supply management, what recommendations would you make to the TechCenter company?
Proposed correction:
1. The average stock is calculated by the formula: (Initial stock + Final stock)/2. That is (400 units + 500 units) ÷ 2 = 450 units.
2. Inventory turnover is calculated by the formula: Sales / Average inventory. Or 3500 units sold ÷ 450 (average stock) = 7,78 times. This means that the TechCenter company managed to sell and replace its inventory approximately 7,78 times during the past year.
3. The inventory turnover ratio is calculated with the formula: 365 days / Inventory turnover. That is, 365 ÷ 7,78 = 46,92 days. This ratio means that the TechCenter company renews its stock every 47 days on average.
4. The optimal supply level should have been adjusted with inventory turnover. The TechCenter company should have restocked its stock approximately every 47 days to maintain the pace of its sales and avoid shortages or overstocks.
5. Given this information, the TechCenter company should implement rigorous inventory and supply management. This is to minimize storage costs and avoid stock shortages as much as possible. Additionally, the TechCenter company could implement a periodic supply system, based on inventory rotation, for items with a similar turnover rate.
Summary of Formulas Used:
| Indicator | Formulas |
|---|---|
| Average stock | (Initial stock + Final stock) ÷ 2 |
| Stock rotation | Sales / Average inventory |
| Inventory turnover ratio | 365 days / Stock rotation |