Inventory Analysis The following data were extracted from the income statement o

Question

Inventory Analysis The following data were extracted from the income statement of Brecca Systems Inc.: Current Year Preceding Year Sales Beginning inventories Cost of goods sold Ending inventories $1,387,000 93,130 693,500 84,330 1,445,400 96,980 803,000 113,780 a. (1). Determine for each year the inventory turnover. Round to one decimail place. urrent year Preceding year (2). Determine for each year the number of days' sales in inventory. Assume there are 365 days in the year. Round intermediate calculations to the nearest whole dolar and final answers to one decimal place. Current year Preceding year days days b. What conclusions can be drawn from these data concerning the inventories? Previous and Exit Submit Assignment for Grading MacBook Pro

Explanation / Answer

Current year = $ 693,500/ [($ 93,130 + $ 84,330)/2] = $ 693,500/ ($ 177,460)/2

                        = $ 693,500/$ 88,730 = 7.8158458 or 7.8 times

Preceding year = $ 803,000/ [($ 96,980 + $ 113,780)/2] = $ 803,000/ ($ 210,760)/2

                        = $ 803,000/$ 105,380 = 7.620042 or 7.6 times

2) Days sales in inventory = Avg. Inventory /Cost of Goods Sold x 365

Current year = [($ 93,130 + $ 84,330)/2] /$ 693,500 x 365

                       = $ 88,730/$ 693,500 x 365 = 46.7 Days

Preceding year = [($ 96,980 + $ 113,780)/2]/ $ 803,000 x 365

                          = $ 105,380/$ 803,000 x 365 = 47.9 Days

3)

Inventory increased faster than sales volume, resulting in a deteriorating inventory position.

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