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27 November, 06:54

The following data were extracted from the income statement of Keever Inc.: Current Year Previous Year Sales $18,500,000 $20,000,000 Beginning inventories 940,000 860,000 Cost of goods sold 9,270,000 10,800,000 Ending inventories 1,120,000 940,000

Current Year Previous Year

Sales $18,500,000 $20,000,000

Beginning inventories 940,000 860,000

Cost of goods sold 9,270,000 10,800,000

Ending inventories 1,120,000 940,000

Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory.

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  1. 27 November, 08:37
    0
    1. The inventory turnover:

    For the current year: 17.96

    For the Previous Year: 22.22

    2. The number of days' sales in inventory:

    For the current year: 40.56 days

    For the Previous Year: 30.42 days

    Explanation:

    1. The inventory turnover is calculated by using following formula:

    Inventory turnover = Sales/Average Inventory

    With:

    Average inventory = (Beginning Inventory for the year + Ending Inventory for the year) / 2

    In the current year:

    Average inventory = ($940,000 + $1,120,000) / 2 = $1,030,000

    Inventory turnover = $18,500,000/$1,030,000 = 17.96

    In the Previous Year:

    Average inventory = ($860,000 + $940,000) / 2 = $900,000

    Inventory turnover = $20,000,000/$900,000 = 22.22

    2. The number of days' sales in inventory is calculated by formula:

    The number of days' sales in inventory = (Average inventory / Cost of goods sold) x 365 days

    In the current year:

    The number of days' sales in inventory = ($1,030,000/$9,270,000) x365 = 40.56 days

    In the Previous Year:

    The number of days' sales in inventory = ($900,000/$10,800,000) x365 = 30.42 days
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