Financial Results for Birmingham Wire and Cable Supply Company Year end 12/31/15 Income Statement Partial Balance Sheet Net Sales $10,000,000 Cash $109,375 Cost of Goods Sold $7,250,000 Accounts Receivable $1,232,877 Gross Margin $2,750,000 Beginning Inventory (1/1/2015) $1,542,553 Payroll/Fringes $2,000,000 Ending Inventory (12/31/2015) $1,735,455 All other Expenses $730.000 Other Current Assets $15,625 Total Expenses $2,730,000 Profit Before Taxes $20,000 As the VP of Operations for Birmingham Wire and Cable Supply, one of your responsibilities is to effectively manage your wire and cable inventory. Given that a key component of your inventory is copper wire, you are very sensitive to the market price of copper since that will affect your cost of wire and cable. Lately, you have been reading where copper prices are likely to go significantly higher over the next year. Given this information and the financial results above, you need to report to the CEO your plan for your inventory purchases next year. In doing so, answer the following questions:
1. What is your current inventory turnover ratio? (Show your calculations)
2. Given the impending rise of inventory costs in wire next year, would you plan to increase or decrease your purchases of wire and cable over the next few months? Explain in detail the reasoning behind your decision (the CEO would need your explanation to provide to the company’s Board of Directors).