Performance Indicators

jessbill3

Scenario 1;
Sales Volume (units) 120,000
Revenue £1,680,000
Gross Profit £600,000
Profit from operations £275,000
Net Assets £2,298,400
Inventory £147,950

Scenario 2;
Sales Volume (units) 150,000
Revenue £1,800,000
Gross Profit £450,000
Profit from operations £200,000
Net Assets £2,100,340
Inventory £167,500

Please can somebody provide the formula and calculation to the following for each scenario;

Inventory holding period in days?

Full Production cost per unit?

SandyHood

Inventory Holding Period
Formula
Closing Inventory Value x 365
Cost of Sales Value

Scenario 1

£147,950 x 365
(£1,680,000 - £600,000)

Scenario 2

£167,500 x 365
(£1,800,000 - £450,000)

SandyHood

Full Production Cost per unit
Formula

Revenue - Profit from Operations
Sales Volume

Scenario 1

£1,680,000 - £275,000
120,000 units

Scenario 2

£1,800,000 - £200,000
150,000 units

SandyHood

I hope the above helps:
We like to know what the inventory is worth in terms of the cost of sales. In scenario 1 we have £147,950 of inventory (this would be finished goods)
As the total cost of the inventory sold (cost of sales) was £1,080,00 over a year this means our inventory is equivalent to 13.7% of the cost of sales. By multiplying this by 365 (days in a year) we can see that are holding inventory worth as much as 50 days sales.

We know that profit from operations is the value left after all the operating costs have been deducted from the revenue. So we can reverse the calculation and find operating costs by deducting the profit from operations from the revenue.
The cost per unit is total operating costs divided by the number of units produced.
In the case of Scenario 1 £1,405,000/120,000 units = £11.71 to the nearest whole pence

I hope this has been useful
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sandy@sandyhood.com
www.sandyhood.com