Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2010 and

Question

Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2010 and $1,200,000 in 2011.

2010 2011
Cash and marketable securities $50,000 $50,000
Accounts receivable 300,000 350,000
Inventories 350,000 500,000
Total current assets 700,000 900,000
Accounts payable 200,000 250,000
Bank loan 0 150,000
Accruals 150,000 200,000
Total current liabilities 350,000 600,000


a. Calculate the inventory turnover for each year. Comment on your findings.
b. What would have been the amount of inventories in 2011 if the 2010 turnover ratio had been maintained?

Explanation / Answer

inventory 2010 = 350000 inventory 2011 = 500000 a. inventory turnover = cost of goods sold/average inventory inventory turnover 2010 = cost of goods sold 2010/average inventory 2010 =(NNN) NNN-NNNN350000 = 2.857 inventory turnover 2011 = cost of goods sold 2011/average inventory 2011 =(NNN) NNN-NNNN500000 = 2.4 b. if 2011 inventory turnover = 2010's level = 2.857 then inventory 2011 = cogs 2011/2.857 =(NNN) NNN-NNNN2.857 = 420000

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