Question

Inventory Analysis QT, Inc. and lona Computers, Inc. compete with each other in the personal computer market. Trembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received, Selected financial Information for both companies from recent financial statements follows (in millions): $56,940 $120,357 Cost of goods sold 44,754 92,385 Inventory, beginning of period 1 382 6,317 Inventory, end of period 1,404 7,490 a. Determine for both companies (1) the inventory tumover and (2) the number of days' sales in Inventory. Round your calculations and answers decimal place. Assume 365 days a year OT Elppa 1. Inventory tumover 2. Number of days cales in inventory o days C days h. OT has a much Inventory turnover ratio than does Elpos. Likewise, T has a much Inventory. These significant differences are a result of OT's make to order strategy

Answer 1

Answer- a)- 1)- Inventory turnover ratio= Cost of goods sold/Average inventory

       QT    = $44754/($1382+$1404/2)

                = $44754/$1393

                = 32.1 times

      Elppa = $92385/($6317+$7490/2)

                  = $92385/$6904

                   = 13.4 times

2)- Average days in inventory = Number of days in a year / Inventory turnover ratio

QT = 365 days/32 times

      = 11.4 days

Elppa = 365 days/13 times

= 28.1 days

b)- QT has a much higher inventory ratio than does Elppa. Likewise QT has a much lower number of days sales in Inventory. These significant differences as a result of make-to-order strategy.