Inventory Analysis QT, Inc. and Elppa Computers, Inc. compete with each other in
ID: 2334466 • Letter: I
Question
Inventory Analysis
QT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions):
a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year.
b. QT has a inventory turnover ratio than does Elppa Company. Likewise, QT has a number of days' sales in inventory
QT Elppa Sales $48,180 $61,900 Cost of goods sold 40,150 58,400 Inventory, beginning of period 1,187 4,960 Inventory, end of period 1,387 5,760Explanation / Answer
Answer a.
QT, Inc.:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($1,187 + $1,387) / 2
Average Inventory = $1,287
Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $40,150 / $1,287
Inventory Turnover = 31.20 times
Number of Days’ Sales in Inventory = 365 / Inventory Turnover
Number of Days’ Sales in Inventory = 365 / 31.20
Number of Days’ Sales in Inventory = 11.70 days
Elppa Computers, Inc.:
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($4,960 + $5,760) / 2
Average Inventory = $5,360
Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $58,400 / $5,360
Inventory Turnover = 10.90 times
Number of Days’ Sales in Inventory = 365 / Inventory Turnover
Number of Days’ Sales in Inventory = 365 / 10.90
Number of Days’ Sales in Inventory = 33.49 days
Answer b.
QT has a higher inventory turnover ratio than does Elppa Company. Likewise, QT has a smaller number of days’ sales in inventory.
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