Question

please show work and be neat

41. Note 3 to the 2016 financial statements of Willamette Valley Vineyards reports that inventories consist of the following: 2016 2015 Winemaking and packaging materials $ 817,836 $ 690,292 Work-in-process 6,634,014 6,058,701 Finished goods 4,518,806 3.883.469 Total inventories $11,970,656 $10,632,462 The company reported cost of goods sold of $7,204,884 in 2016 and $7,092,111 in 2015. At December 31, 2014, Total inventories were $ 9,910,570. Compute average days inventory outstanding for both years. What does this ratio mean? Interpret the ratios

Answer 1

Average days inventory outstanding = Average inventory*365/Cost of goods sold.	2016	2015	2014
Ending inventory	$1,19,70,656	$    1,06,32,462	$   99,10,570
Average inventory	$1,13,01,559	$    1,02,71,516
COGS	$    72,04,884	$        70,92,111
Average days' inventory outstanding	573	529
Average years' inventory outstanding	1.57	1.45
INTERPRETATION
The inventory outstanding is about one and a half year in both the years. It is indicative
of the nature of the industry--Winemaking.
The operating cycle of wine industry is more than one year and hence the cash
converstion cycle would also be veryhigh.
The ratio has deteriorated in 2016 as the DIO has increased from 2015 by about 8%.
However, a correct assessment can be made only if industry standards are available.