The following is information for Palmer Co. Year 3 Year 2 Year 1 Cost of goods sold $ 643,825 $ 426,650 $ 391,300 Ending inventory 97,400 87,750 92,500 Use the above information to compute inventory turnover for Year 3 and Year 2, and its days' sales in inventory at December 31, Year 3 and Year 2

Inventory turnover

Year 3 6.95 times

Year 2 4.73 times

Year 1 4.23 times

Days Sales In Inventory

Year 3 55.22 days

Year 2 75.07 days

Year 1 86.28 days

Explanation:

Inventory turnover is the ratio that how many time a business has sold or replaced the inventory during a given period. A business is considered more profitable if it has high inventory turnover.

According to given data

Year 3 Year 2 Year 1

Merchandise inventory 97,400 87,750 92,500

Cost of goods sold $643,825 $426,650 $391,300

Inventory turnover = Cost of Goods Sold / Average Inventory value

Inventory turnover = Cost of Goods Sold / [ (Opening Inventory + Closing Inventory) / 2 ]

Year 3

Inventory Turnover = $643,825 / [ (97400 + 87750) / 2 ] = 6.95

Year 2

Inventory Turnover = $426,650 / [ (87750 + 92500) / 2 ] = 4.73

Year 1

Inventory Turnover = $391,300 / 92500 = 4.23

As there will be no Beginning inventory so average inventory will be same as the closing inventory is the same as the Closing Inventory.

Days Sales In Inventory = 365 x Ending Inventory / Cost of Goods Sold

Year 3

Days Sales In Inventory = 365 x 97,400 / $643,825 = 55.22 days

Year 2

Days Sales In Inventory = 365 x 87,750 / $426,650 = 75.07 days

Year 1

Days Sales In Inventory = 365 x 92,500 / $391,300 = 86.28 days