Inventory Analysis The following data were extracted from the income statement o
ID: 2582892 • Letter: I
Question
Inventory Analysis
The following data were extracted from the income statement of Brecca Systems Inc.:
a. Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory. Round interim calculations to the nearest dollar and the final answers to one decimal place. Assume 365 days a year.
b. The inventory position of the business has . The inventory turnover has , while the number of days' sales in inventory has .
Current Year Previous Year Sales $730,000 $762,100 Beginning inventories 54,300 38,460 Cost of goods sold 365,000 423,400 Ending inventories 49,100 54,300Explanation / Answer
a) INVENTORY TURNOVER:
Inventory Turnover = Cost of Goods sold/ Average Inventory
Average Inventory = (Beginning Inventory + Closing Inventory)/2
PARTICULARS
CURRENT YEAR
PREVIOUS YEAR
Cost of Goods Sold
365000
423400
Average Inventory
51700
46380
Inventory Turnover Ratio
7.06
9.13
Average Days held in Inventory
365/7.06= 51.7 days
365/9.13=39.97 days
b) The inventory position of the business has an ending inventory of 49100, the inventory turnover has 7.06 and while the number of days sales in inventory has 39.97 days i.e approximately 40 days.
PARTICULARS
CURRENT YEAR
PREVIOUS YEAR
Cost of Goods Sold
365000
423400
Average Inventory
51700
46380
Inventory Turnover Ratio
7.06
9.13
Average Days held in Inventory
365/7.06= 51.7 days
365/9.13=39.97 days
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