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16 May, 06:30

A firm has current liabilities of $500, a current ratio of 1.5, and a quick ratio of 1.1. calculate the level of inventory for this firm.

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  1. 16 May, 06:43
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    The inventory level will be used by an inventory manager to regulate the optimal time for manufacturing, if they are handling a manufacturer's warehouse, or to demand more if the product is being stored as stock at a store.

    To solve this:

    Get first the Current Assets this solved by multiplying the current liabilities to the current ratio.

    CA = $500 (1.5) = $750

    Then get the inventory level by multiplying the current asset to the product of the current liabilities and quick ratio.

    Inventory level = $750 (500 x 1.1) = $412,500
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