I6-40. LO3 Volkswagen Group Daimler AG Computing and Evaluating Inventory Turnov
ID: 2341596 • Letter: I
Question
I6-40. LO3 Volkswagen Group Daimler AG Computing and Evaluating Inventory Turnover for Two Companies European car makers, Volkswagen Group (headquartered in Wolfsburg, Germany) and Daimler AG (headquartered in Stuttgart, Germany) report the following information. Module 6 Inventories, Accounts Payable, and Long-Term Assets Volkswagen Daimler Cost of Cost of Euros in millions Sales Goods Sold Inventories Sales Goods Sold Inventories 2014.... 202,458 165,934 213,292 179,382 31,466 35,048 129,872 101,688 149,467 20,864 23,760 117670 Required a. Compute the 2015 inventory turnover and the 2015 gross profit margin (in %) for each of these two companies b. Discuss any difference in inventory turnover and gross profit margin between these two companies Does the difference confirm expectations given their respective business models? Explain. C. How could the companies improve inventory turnover?Explanation / Answer
a Volkswagen Daimler Inventory Turnover Cost of Goods sold/Inventory 5.12 4.95 179382/35048 117670/23760 Gross Profit Gross Margin/Sales 15.90% 21.27% (213292-179382)/213292 (149467-117670)/149467 b The inventory turnover represents the number of times the companies inventories are sold. While Volkswagen has higher inventory turnover as compared to Daimler. The gross profit is the profit generated after reducing the direct costs of producing the goods. The higher this ratio the better it is as can be seen Daimler has higher gross profit as compared to Volkswagen which indicates that the company is able to control the costs of producing the cars c The companies can improve the inventory turnover by reducing the amount of inventory held in the stock and by improving its sales