Question

Cost of goods sold Ending inventory Year 3 $593,825 101,400 Year 2 $376,650 91,750 Year 1 $341,300 96,500 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 (a) Use the above information to compute inventory turnover for Year 2, and its days' sales in inventory at December 31, Year 2. Numerator 1 Denominator = Ratio Inventory turnover Days' sales in inventory (b) Use the above information to compute inventory turnover for Year 3, and its days' sales in inventory at December 31, Year 3. Numerator Denominator = Ratio Inventory turnover Days' sales in inventory

Answer 1

Ans. A		Numerator	/	Denominator	=	Ratio
	Inventory turnover	$376,650	/	$94,125		4.00	times
	Days' sales in inventory	$91,750	/	$376,650	* 365	88.91	days
Ans. B		Numerator	/	Denominator	=	Ratio
	Inventory turnover	$593,825	/	$96,575		6.15	times
	Days' sales in inventory	$101,400	/	$593,825	* 365	62.33	days
	*Working Notes
	*Average inventory = (Beginning inventory + Ending inventory) / 2
	Year 2	($96,500 + $91,750) / 2		$94,125
	Year 3	($91,750 + $101,400) / 2		$96,575
	Cost of goods sold / Average Inventory   = Inventory turnover
	Ending inventory / Cost of goods sold * Number of days in year = Days' sales in inventory