1.
Concept introduction:
Inventory Turnover Ratio: Inventory Turnover Ratio is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:
Note: Average inventory is calculated with the help of following formula:
Day’s sales in inventory: Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated by using the following formula:
To calculate: The inventory turnover and days sales in inventory ratio for the company for two years.
1.
Answer to Problem 9BTN
The inventory turnover and days sales in inventory ratios for the company for two years are as follows:
Current year | One year prior | |
Inventory Turnover Ratio | 7.04 | 7.47 |
Days Sales in inventory | 52 | 49 |
Explanation of Solution
The inventory turnover and days sales in inventory ratios for the company for two years are calculated as follows:
Korean won in millions | Current year | One year prior |
Cost of Goods Sold (A) | 128,278,800 | 137,696,309 |
Beginning Inventory (B) | 19,134,868 | 17,747,413 |
Ending Inventory (C) | 17,317,504 | 19,134,868 |
Average Inventory (D) = (B+C)/2 = | 18,226,186 | 18,441,141 |
Inventory Turnover Ratio (E) = A/D = | 7.04 | 7.47 |
Days Sales in inventory = 365 / E = | 52 | 49 |
2.
Concept introduction:
Inventory Turnover Ratio: Inventory Turnover Ratio is calculated by dividing the Cost of goods sold by average inventory. The formula of the Inventory Turnover Ratio is as follows:
Note: Average inventory is calculated with the help of following formula:
Day’s sales in inventory: Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated using the following formula:
To indicate: The comment on the findings.
2.
Answer to Problem 9BTN
The efficiency of inventory management has decreased.
Explanation of Solution
The inventory turnover and days sales in inventory ratios for the company for two years are calculated as follows:
Korean won in millions | Current year | One year prior |
Cost of Goods Sold (A) | 128,278,800 | 137,696,309 |
Beginning Inventory (B) | 19,134,868 | 17,747,413 |
Ending Inventory (C) | 17,317,504 | 19,134,868 |
Average Inventory (D) = (B+C)/2 = | 18,226,186 | 18,441,141 |
Inventory Turnover Ratio (E) = A/D = | 7.04 | 7.47 |
Days Sales in inventory = 365 / E = | 52 | 49 |
The inventory turnover has decreased and day’s sales in inventory ratio have increased in the current year and compared with the previous year. It indicates that the efficiency of inventory management has decreased.
Want to see more full solutions like this?
Chapter 5 Solutions
Financial Accounting: Information for Decisions
- The following revenue data were taken from the December 31, 2017, General Electric annual report (10-K): For each segment and each year, calculate intersegment sales (another name for transfer sales) as a percentage of total sales. Using Microsoft Excel or another spreadsheet application, create a clustered column graph to show the 2016 and 2017 percentages for each division. Comment on your observations of this data. How might a division sales manager use this data?arrow_forwardThe following revenue data were taken from the December 31, 2017, Coca-Cola annual report (10-K): For each segment and each year, calculate intersegment sales (another name for transfer sales) as a percentage of total sales, Using Microsoft Excel or another spreadsheet application, create a clustered column graph to show the 2016 and 2017 percentages for each division. Comment on your observations of this data. How might a division sales manager use this data?arrow_forwardNorwood Company makes miniature circuit boards that are components of wireless phones and personal organizers. The company has experienced strong growth, and you are especially interested in how well Norwood is managing its inventory balances. You have collected the following information for the current year. Inventory at the beginning of year: $ 1,026,000Inventory at the end of year, before any adjustments: 1,007,000Total cost of goods sold, before any adjustments: 11,776,000 The company values inventory at lower-of-cost (using LIFO cost fl ow assumption)-or-market; use the cost-of-goods-sold method.Instructions(a) Compute Norwood’s inventory turnover before any adjustment.(b) Recompute the inventory turnover after adjusting Norwood’s inventory information for the following items.1. During the year, Norwood recorded sales and costs of goods sold on $22,000 of units shipped to various wholesalers on consignment. At year-end, none of these units have been sold by wholesalers.2.…arrow_forward
- Need a,b,c,d Suppose that a firm has an ending inventory of $121,000 as of December 31, 2012. The accounting information for 2013 has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Question S A. What is the monthly inventory turnover ratio for each of the twelve months for 2013? Round your answers to two decimal places. B. What is the total cost of goods sold for the year? Round your answer to the nearest dollar. C. What is the average monthly inventory? Round your answer to the nearest cent. D. What is the annual inventory turnover ratio? Do not round intermediate calculations. Round your answer to two decimal places.arrow_forwardNorwood Company makes miniature circuit boards that are components of wireless phones and personal organizers. The company has experienced strong growth, and you are especially interested in how well Norwood is managing its inventory balances. You have collected the following information for the current year. Inventory at the beginning of year $ 1,026,000 Inventory at the end of year, before any adjustments 1,007,000 Total cost of goods sold, before any adjustments 11,776,000 The company values inventory at lower-of-cost (using LIFO cost flow assumption)-or-market; use the cost-of-goods-sold method. Instructions a. Compute Norwood’s inventory turnover before any adjustment. b. Recompute the inventory turnover after adjusting Norwood’s inventory information for the following items. 1. During the year, Norwood recorded sales and costs of goods sold on $22,000 of units shipped to various wholesalers on consignment. At year-end, none of these units have been sold…arrow_forwardThe plant manager, Murat Kristal, at York Technologies makes Aircraft Navigation Systems. He expects you, as the new OM analyst, to provide some insight for performance of the plant. High on his list is an understanding of his inventory turnover based on the financial data provided below. Click the icon to view the additional information on the financial data. a) Based on total inventory, what is the inventory turnover for last year? Inventory turnover for last year is b) Based on total inventory, what is the inventory turnover for this year? Inventory tumover for this year is times per year (round your response to two decimal places). c) Has inventory turnover improved this year? Inventory turnover has this year. times per year (round your response to two decimal places) More Info Sales Cost of goods sold Gross margin Other expenses Net income Finished goods inventory Work-in-process inventory Raw material inventory Total inventory (average for year) Other current assets Other assets…arrow_forward
- Selected comparative financial statements of Haroun Company follow. HAROUN COMPANY Comparative Income Statements For Years Ended December 31, 2021-2015 ($ thousands) Sales 2021 Cost of goods sold $ 1,769 1,271 2020 $ 1,549 2019 2018 2017 2016 2015 $ 1,410 $ 1,292 $ 1,206 $ 1,121 $ 919 1,034 889 778 723 676 539 Gross profit 498 515 521 514 483 445 380 Operating expenses Net income 377 295 271 200 173 171 142 $ 121 $ 220 $ 250 $ 314 $ 310 $ 274 $ 238 HAROUN COMPANY Comparative Year-End Balance Sheets December 31, 2021-2015 ($ thousands) Assets Cash Accounts receivable, net Merchandise inventory Other current assets Long-term investments Plant assets, net Total assets Liabilities and Equity 2021 2020 2019 2018 2017 2016 2015 $ 108 773 $ 142 812 $ 148 735 2,797 2,036 1,779 $ 151 564 1,499 $ 157 496 $ 155 $ 160 470 332 1,346 1,144 829 72 65 40 71 60 61 32 e B 220 220 220 220 3,422 3,409 2,982 1,683 $ 7,172 $ 6,464 $ 5,684 $ 4,188 $ 4,019 1,740 1,546 $ 3,596 $ 2,900 1,327 Current liabilities…arrow_forwardThe initial analysis should include the following: The ratio equation The calculation of the ratio using the equation and the pre-assigned Quick Study or Exercise from the textbook. (See below) Use the result in a sentence; i.e. For every dollar invested in assets the company is earning 22.4 cents or 22.4% in net income. Exercise 6-13 Inventory turnover and days' sales in inventory LA3 0 Use the following information for Palmer Co. to compute inventory turnover for Year 3 and Year 2, and its days' sales in inventory at December 31, Year 3 and Year 2. (Round answers to one decimal.) Comment on Palmer's efficiency in using its assets to increase sales from Year 2 to Year 3. Year 3 Year 2 Year 1 Cost of goods sold $643,825 $426,650 $391,300 Ending inventory 97,400 87,750 92,500arrow_forwardUse the following information to complete the calculations below. Cost of goods sold $195,640 Inventory: Beginning of year 20,500 End of year 18,628 a. Compute inventory turnover. b. Compute average daily cost of goods sold using a 365 day year. c. Compute number of days' sales in inventory. Round your answer to one decimal place. daysarrow_forward
- Rockingham Communications reported the following figures in its annual financial statements: n to view the figures.) Question Viewer Compute the rate of inventory turnover and days' sales in inventory for Rockingham Communications. (Round to two decimal places.) Select the labels and enter the amounts to compute the inventory turnover. (Enter the amount for average inventory to one decimal place, X.X. Round your answer to two decimal places, X.XX.) Data table + Print ÷ Cost of Goods Sold Beginning Merchandise Inventory Ending Merchandise Inventory Done C…... $ 18,200 560 420 X = = Inventory turnover timesarrow_forward10. Review the select information for Bean Superstore and Legumes Plus (industry competitors), and then complete the following. A. Compute the accounts receivable turnover ratios for each company for 2018 and 2019. B Compute the number of days sales in receivables ratios for each company for 2018 and 2019 C. Determine which company is the better investment and why. Round answers to two decimal places.arrow_forwardGameWorld Corp. is the world's largest multichannel video game retailer. The company reported the following amounts (in millions) in its annual financial statements at the end of January. Net Sales Revenue Cost of Goods Sold Beginning Inventory Ending Inventory 2016 $16,400 9,240 2,550 2,950 Inventory Turnover Ratio Days to Sell 2015 $15,900 8,840 1,850 2,550 Required: 1. Determine the inventory turnover ratio and average days to sell inventory for 2016 and 2015. TIP: Remember to use costs in both the numerator (CGS) and denominator (average inventory). (Use 365 days in a year. Round your intermediate and final answers to 1 decimal place.) 2016 times per year days 2015 times per year daysarrow_forward
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College