The following data are taken from the financial statements: Determine for each y

Question

The following data are taken from the financial statements:

Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory.

1. The inventory turnover: (If required, round your answers to one decimal place.)

Current Year

Preceding Year

2. The number of days' sales in inventory: Assume a 365-day year. (Round your answers to two decimal places.)

Current Year
days

Preceding Year
days

Current Year Preceding Year Sales $3,600,000     $4,000,000                 Cost of goods sold 2,000,000     2,700,000                 Average inventory 372,000     352,000                 Inventory, end of year 372,000     347,000                

Explanation / Answer

Inventory turnover ratio = cost of goods sold/ average inventory

Cuurent Year   = 2000000/372000 = 5.37 times

Previous Year = 2700000/352000 = 7.67 times

The number of days' sales in inventory: Assume a 365-day year. (Round your answers to two decimal places.)

No of days sales in Inventory=   365/ invententory turnover ratio

Current Year   =   365/5.37 = 67.97 days

Previous Year = 365/ 7.67 = 47.58 days

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