Calculate GMROI for the chain case
Calculate GMROI and use it to choose a jewelry category action.
The 14K chain case sold well, but the owner wants to know which chain family deserves more inventory before the next buy. GMROI = gross margin dollars divided by average inventory cost. Common trap: rewarding the highest revenue chain while ignoring the inventory cost required to produce that revenue. Step 1 Paperclip chains produced $36,000 sales at 48% gross margin, so gross margin dollars = $17,280. GMROI starts with gross margin dollars, not revenue, because revenue alone ignores profitability. Step 2 Average inventory cost for paperclip chains was $6,400 during the period. Average inventory cost represents the cash the case…
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