Bathurst Engineering Ltd Makes Extensive Use of Financial Performance ReportsRequired:
A

Question

Bathurst Engineering Ltd Makes Extensive Use of Financial Performance ReportsRequired: 
A

Examlex · Accepted Answer

The Answer is a.

\begin{array} { | l | l | l | l | l | } \hline ext { Year } & ext { Quantity used } & & ext { Average inventory } & ext { Turnover } \\hline 2013 & 60000 & ext { divided by } & 12000 & 5.0 \\hline 2014 & 90000 & ext { divided by } & 22500 & 4.0 \\hline 2015 & 90000 & ext { divided by } & 30000 & 3.0 \\hline 2016 & 75000 & ext { divided by } & 18750 & 4.0 \\hline 2017 & 31000 & ext { divided by } & 27000 & 3.0 \\hline 2018 & 37000 & ext { divided by } & 34800 & 2.5 \\hline\end{array}

Favourable purchase prices appear to be associated with decreases in inventory turnover and increases in average inventory levels.Decreases in inventory turnover are a possible signal of the build-up of excess inventory.Excess inventory will reduce return on investment of the company and the above information indicates a need for a just-in-time inventory system.
b.To achieve quantity discounts and favourable materials price variances,purchasing may be ordering excess inventory,thereby increasing subsequent storage,obsolescence,and handling costs.To obtain a low price,purchasing may be ordering from a supplier whose goods have inferior quality which may,in turn,lead to increased inspection,rework,and perhaps dissatisfied customers.
c.It appears that two approaches may help improve the situation.First,consider the change to a just-in-time inventory system that would greatly improve the inventory turnover and reduce the amount of inventory carried.Secondly,additional measures should be used in the evaluation of the purchasing department.Either different financial measures should be used or the addition of non-financial measures should be implemented.

Bathurst Engineering Ltd Makes Extensive Use of Financial Performance Reports

Definitions: