Question

Endor Company begins the year with $110,000 of goods in inventory. At year-end, the amount in inventory has increased to $121,000. Cost of goods sold for the year is $1,500,000.

Compute Endor’s inventory turnover and days’ sales in inventory. Assume there are 365 days in the year.

Answer 1

Endor Company's inventory turnover is approximately 12.99 times, and the days' sales in inventory is about 28.1 days, calculated using the given inventory values and cost of goods sold.

Step-by-step explanation:

To compute Endor’s inventory turnover, we use the following formula:

Inventory Turnover = Cost of Goods Sold / Average Inventory

First, we calculate the average inventory. The average inventory is the sum of the beginning and ending inventory divided by two. For Endor Company, this would be:

Average Inventory = ($110,000 + $121,000) / 2 = $115,500

Now we can compute the inventory turnover:

Inventory Turnover = $1,500,000 / $115,500 ≈ 12.99 times

To calculate the days’ sales in inventory, we need the formula:

Days' Sales in Inventory = 365 days / Inventory Turnover

Days' Sales in Inventory = 365 / 12.99 ≈ 28.1 days

Endor Company turns over its inventory approximately 12.99 times a year, and it takes about 28.1 days to sell its inventory.