Based on the following information: compute (a) inventory turnover; (b) average

Question

Based on the following information: compute (a) inventory turnover; (b) average daily cost of goods sold; and (c) number of days' sales in inventory for the current year. Use a 365-day year. (d) If an inventory turnover of 12 is average for the industry, how is this company doing?

If required, round your answers to two decimal places.

(d) If an inventory turnover of 12 is average for the industry, how is this company doing?

Item Prior Year Current Year Cost of goods sold $172,900    $215,000 Inventory 18,000 12,000

Explanation / Answer

Answer

Working

Inventory

A

Prior Year

18000

B

Current Year

12000

C=A+B

Total

30000

D=C/2

Average inventory

$15000

A

Cost of Goods Sold

215000

B

Average Inventory

15000

C=A/B

(a)Inventory Turnover ratio

14.33 times

A

Cost of Goods Sold

215000

B

No. of days

365

C=A/B

(b) Average daily cost of goods sold

$589.04

A

No. of days in a year

365

B

Inventory Turnover ratio

14.33

C=A/B

Number of days sales in inventory

25.47 days

Working

Inventory

A

Prior Year

18000

B

Current Year

12000

C=A+B

Total

30000

D=C/2

Average inventory

$15000

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