Inventories for Robinson Company are $500,000 for 2014 and $350,000 for 2013. Su

Question

Inventories for Robinson Company are $500,000 for 2014 and $350,000 for 2013. Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2013 and $1,200,000 in 2014. a. Calculate the inventory turnover for each year. Comment on your findings.
b. What would have been the amount of inventories in 2014 if the 2013 turnover ratio had been maintained? Answers: Enter the answers in blue shaded cells Formula 2013 2014 a. Inventory turnover T C C Comment T Formula 2014 Inventories b. Inventories T C Inventories for Robinson Company are $500,000 for 2014 and $350,000 for 2013. Suppose the Robinson Company had a cost of goods sold of $1,000,000 in 2013 and $1,200,000 in 2014. a. Calculate the inventory turnover for each year. Comment on your findings.
b. What would have been the amount of inventories in 2014 if the 2013 turnover ratio had been maintained? Answers: Enter the answers in blue shaded cells Formula 2013 2014 a. Inventory turnover T C C Comment T Formula 2014 Inventories b. Inventories T C

Explanation / Answer

Inventory turnover = COGS/Inventory

For 2013 : 1000000/350000 = 2.857

For 2014 : 1200000/500000 = 2.4

Turnover ratio has reduced in 2014 compared to 2013 showing excess inventory being stocked up mostly in anticipation of greater demand.

In order to maintain 2013 inventory turnover levels 2014 inventory should be : 1200000/2.857 = 420021.00

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