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mnment Exercise 5-13 Inventory turnover and days soles in inventory LO AS The following is information for Palmer Co. 2017 2
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Answer #1

(a) Inventory turnover ratio = Cost of the goods sold / Average inventory

where, Average inventory = Beginning inventory + Ending inventory / 2

For 2016:

Ending inventory = $94250, Beginning inventory = Ending inventory of 2015 = $99000

Average inventory = ($99000 + $94250) / 2 = $193250 / 2 = $96625

Cost of the goods sold = $351650

Putting these values in the inventory turnover ratio formula, we get,

Inventory turnover ratio = $351650 / $96625 = 3.64

Days' sales in inventory = 365 / Inventory turnover ratio

For 2016

Inventory turnover ratio = 3.64 times ( as calculated above)

Putting these values in the Days' sales in inventory ratio formula, we get,

Days' sales in inventory ratio = 365 / 3.64 = 100.27 days

(b) Inventory turnover ratio = Cost of the goods sold / Average inventory

For 2017:

Ending inventory = $103900, Beginning inventory = Ending inventory of 2016 = $94250

Average inventory = ($94250 + $103900) / 2 = $198150 / 2 = $99075

Cost of the goods sold = $568825

Putting these values in the inventory turnover ratio formula, we get,

Inventory turnover ratio = $568825 / $99075 = 5.74

Days' sales in inventory = 365 / Inventory turnover ratio

For 2017

Inventory turnover ratio = 5.74 times ( as calculated above)

Putting these values in the Days' sales in inventory ratio formula, we get,

Days' sales in inventory ratio = 365 / 5.74 = 63.59 days

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