Question

CMJ constructors Ltd. sells automobile parts. During the current year, CMJ reported cost of goods sold on its income statement of $400,000. CMJ's beginning inventory was $2,000,000 and its ending inventory was $3,000,000. What is CMJ's turnover? If the industry turnover for automobile parts manufacturing is 0.3, what can you say about Donny’s inventory productivity?

Answer 1

CMJ Constructors Ltd. has an inventory turnover of 0.2, which is lower than the industry average of 0.3, suggesting that CMJ might have excess inventory or slower sales compared to its peers.

Step-by-step explanation:

CMJ Constructors Ltd.'s inventory turnover is calculated by dividing the cost of goods sold by the average inventory.

The formula is: Cost of Goods Sold / ((Beginning Inventory + Ending Inventory) / 2)

Using the given figures, CMJ's inventory turnover would be $400,000 / (($2,000,000 + $3,000,000) / 2) = 0.2.

This means CMJ turns over its inventory 0.2 times a year.

Comparing CMJ's turnover to the industry average of 0.3, we can infer that CMJ's inventory productivity is lower than the industry average, indicating that CMJ may have excess inventory or slower sales relative to its industry peers.