Inventory turnover and number
Inventory turnover and number of days’ sales in inventoryFinancial statement data for years ending December 31 for TangoCompany follow: 20Y7 20Y6 Cost of goods sold $3,791,255 $4,040,550Inventories: Beginning of year 766,500 730,000 End of year 846,800766,500 Required
a. Determine the inventory turnover for 20Y7 and 20Y6. Round toone decimal place. 20Y7 20Y6 Inventory turnover
b. Determine the number of days’ sales in inventory for 20Y7 and20Y6. Use 365 days and round to one decimal place. 20Y7 20Y6 Numberof days’ sales in inventory days days
c. Are the changes in inventory turnover and the number of days’sales in inventory from 20Y6 to 20Y7 favorable or unfavorable?
Answer:
Ans:
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a)Calculation of Inventoryturnover: |
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inventory turnover= cost of goodssold/ Average account inventory |
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2017 |
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Average inventory=(766500+846800)/2= 806650 |
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inventory turnover=3791255/806650=4.7 |
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Inventory turnover is 4.7times |
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2016 |
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Average inventory=(766500+730000)/2=748250 |
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inventory turnover= 4040550/748250=5.4 times |
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Inventory turnover is 5.4times |
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Calculation of days sale in ininventory: |
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days sale in in inventory=365/inventory turnover |
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2017 |
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days sale in in inventory=365/4.7=77.7days |
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2016 |
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days sale in in inventory=365/5.4=67.6 days |
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Changes will be favourable sincethe higher the inventory turnover ratio the better it is |
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for the company |
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