The following is information for Palmer Co.

2017 2016 2015

Cost of goods sold $ 578,825 $ 361,650 $ 326,300

Ending inventory 102,900 93,250 98,000

Required:

A) Use the above information to compute inventory turnover for 2017 and 2016, and its days' sales in inventory at December 31, 2017 and 2016.

The computation of inventory turnover and the days sales in inventory is shown below:

Inventory turnover ratio equals to

= Cost of goods sold : average inventory

where,

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

For 2017, it would be

= $ (578,825) : { ($102,900 + $93,250) : 2}

= $ (578,825) : ($98,075)

= 5.90 times

For 2016, it would be

= ($361,650) : { ($98,000 + $93,250) : 2}

= ($361,650) : ($95,625)

= 3.78 times

Now the days sales in inventory is

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

For 2017, it would be

= 365 days : 5.90 times

= 61.86 days

For 2016, it would be

= 365 days : 3.78 times

= 96.56 days

We assume there are 365 days in a year