Can someone explain me this please ? A company's typical inventory holding period at any time is:
Raw materials : 10 days
Work in progress: 30 days
Finished goods: 40 days
Annual cost of goods sold as per the financial statements is $100m of which the raw materials purchases account for 40% of the total.
The company has implemented plans to reduce the level of inventory held, the effects of which are expected to be as follows:
(1) Raw material holding time to be reduced by 4 days
(2) Production time to be reduced by 5 days
(3) Finished goods holding time to be reduced by 5 days.
Assuming a 365-day year, what will be the reduction in inventory held?
A.$ 3.178m
B.$ 3.151m
C.$ 2.603m
D.$ 1.370m