B74 Calculating and Interpreting the Inventory Turnover Ratio and Days to Sell [

Question

B74 Calculating and Interpreting the Inventory Turnover Ratio and Days to Sell [LO 7-6] Amazon com reported the following amounts its financial statement (in millions): 2010 2000 Net Sales $34,204 $24,509 Cost of Goods Sold 26,561 18,978 Beginning Inventory 2,171 1,399 Ending Inventory 3,202 2,171 Required: Determine the inventory turnover ratio and average days to set inventory for 2010 and 2009 (Use 365 days in a year. Round your intermediate and final answers to one decimal place.) 2010 2009 Inventory Turnover Ratio times per year times per year Average Days to Sell Inventory days days

Explanation / Answer

Average Inventory= Beginning Inventory + Ending Inventory/2

Inventory Turnover =365/( Cost of Goods Sold / Average Inventory )

Average days to sell inventory= Ending Inventory /cost of Goods sold x 365

2009:

Average Inventory = 2,171 + 1,399 /2 = 3,570/2 = 1,785

Inventory Turnover = 365/( 18,978/1,785) = 365/10.63= 34.34 times

Average days to sell inventory = 2,171 /18,978 x 365 = 2,171/52=41.75 days

2010:

Average Inventory = 2,171 +3,202/2= 5,373/2 = 2,686.5

Inventory Turnover =365/(26,561 /2,686.5) = 365/9.886 = 36.92 times

Average days to sell inventory = 3,202 /26,561 x 365 = 0.008857 x 365 = 44 days

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