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27 August, 05:27

The following balances come from the financial statements of a company: Sales revenue $ 850,000 Accounts receivable 280,000 Beginning inventory 50,000 Ending inventory 30,000 Net purchases 460,000 Sales returns 50,000 Sales discount 20,000 Given this information, what is the company's inventory turnover ratio and average days in inventory?

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  1. 27 August, 06:27
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    The company's inventory turnover ratio and average days in inventory is 12 times and 30.41 days respectively

    Explanation:

    The computation of the company's inventory turnover ratio and average days in inventory is shown below:

    Inventory turnover ratio = Cost of goods sold : average inventory

    where,

    Average inventory = (Opening balance of inventory + ending balance of inventory) : 2

    = ($50,000 + $30,000) : 2

    = $40,000

    The formula to compute the cost of goods sold is shown below:

    Cost of goods sold = Opening inventory + Purchase - ending inventory

    = $50,000 + $460,000 - $30,000

    = $480,000

    So, the cost of good sold is $480,000

    Now put these values to the above formula

    So, the answer would be equal to

    = $480,000 : $40,000

    = 12 times

    And, the Days in inventory equals to

    = Total number of days in a year : inventory turnover ratio

    = 365 days : 12 times

    = 30.41 days

    We assume 365 days in a year
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