Question

W. Glass & Company reported the following information in its recent annual report: Year 1 Year 2 Cost of goods sold $8,000,000 $9,200,000 Beginning inventory 900,000 860,000 Ending inventory 860,000 640,000 Calculate the company’s inventory turnover and days’ sales in inventory for both years.

Answer 1

To calculate the inventory turnover, divide the cost of goods sold by the average inventory. The days' sales in inventory can be calculated by dividing 365 days by the inventory turnover.

Step-by-step explanation:

To calculate the inventory turnover, we need to divide the cost of goods sold by the average inventory. The average inventory can be calculated by adding the beginning and ending inventory and dividing by 2. For Year 1, the average inventory is $880,000 ($900,000 + $860,000 / 2) and for Year 2, it is $750,000 ($860,000 + $640,000 / 2). Therefore, the inventory turnover for Year 1 is 9.09 ($8,000,000 / $880,000) and for Year 2 it is 12.27 ($9,200,000 / $750,000).

The days' sales in inventory can be calculated by dividing 365 days by the inventory turnover. For Year 1, the days' sales in inventory is approximately 40.16 days (365 / 9.09) and for Year 2 it is approximately 29.83 days (365 / 12.27).