The following table shows financial data (year 2004) for Costco Wholesale and WaIMart, two major U.S. retailers.
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Costco
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WaIMart
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Wholesale (1 million)
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Stores (1 million)
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Inventories
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$ 3,641
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$29,447
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Sales (net)
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$ 48,106
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$286,103
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COGS
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$41,651
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$215,493
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Assume that both companies have an average annual holding cost rate of 30 percent (i.e., it costs both retailers $3 to hold an item that they procured for $10 for one entire year).
a. How many days, on average, does a product stay in Costco's inventory before it is sold? Assume that stores are operated 365 days a year.
b. How much lower is, on average, the inventory cost for Costco compared to Wal-Mart of a household cleaner valued at $5 COGS? Assume that the unit cost of the household cleaner is the same for both companies and that the price and the inventory turns of an item are independent.