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ID: 2688084 • Letter: #
Question
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2011
2012
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
The Robinson Company had a cost of goods sold of $1,000,000 in 2011 and $1,200,000 in 2012.
a. Calculate the inventory turnover for each year. Comment on your findings
b. What would have been the amount of inventories in 2012 if the 2011 turnover ratio had been maintained?
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2011
2012
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
Explanation / Answer
ITR = COGS/Avge Inv Avge Inv = (350,000 +500,000)/2 = 400,000 a. SO ITR for 2011 = 1000,000/400,000 = 2.5 ITR for 2012 = 1200,000/400,000 = 3.0 b. For ITR of 2.5, COGS = 1200,000, INV for 2011 is 350,000 SO ITR = COGS/(Inv2011 + Inv2012)/2 = 2*COGS/(Inv2011 + Inv2012) ie (Inv2011 + Inv2012) = 2*COGS/ITR = 2*1200,000/2.5 = 960,000 SO Inv2012 = 960,000 - INV2011 = 960,000 - 350000 = 610,000 ...
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