Question

Inventory Turnover and Days' Sales in Inventory The following financial statement data for years ending December 31 for Holland Company are shown below. 20Y4 20Y3 Cost of merchandise sold $1,284,800 $784,385 Inventories: Beginning of year $263,530 $184,690 End of year 378,870 263,530 a. Determine the inventory turnover for 20Y4 and 20Y3. Round to one decimal place. Inventory Turnover 20Y4 20Y3 b. Determine the days' sales in inventory for 20Y4 and 20Y3. Assume 365 days a year. Round interim calculations and final answers to one decimal place. Days' Sales in Inventory 20Y4 days 20Y3 days c. Does the change in inventory turnover and the days' sales in inventory from 20Y3 to 20Y4 indicate a favorable or an unfavorable trend?

Answer 1

Inventory Turnover Ratio : Cost of Goods Sold / Average Invenotry 20Y4 2013 Beginning Inventory 263530 184690 Ending Invenotry 378870 263530 Average Invenotry 321200 224110 Cost of Goods Sold 1284800 784385 Inventory Turnover Ratio (Times) 4.0 3.5 Days in Invenotry: (Average Invenotry / Cost of Goods Sold )*365 2014 20Y3 Average Invenotry 321200 224110 Cost of Goods Sold 1284800 784385 Days in Inventory (Days) 91.3 104.3 Answer 2044 2043 Inventory Turnover Ratio (Times) 4.0 3.5 Days in Inventory (Days) 91.3 104.3 Does the Change in Inventory turnover ans day's sales Favorable in invenotry from 20Y3 to 2014