Question

The following data were extracted from the income statement of Keever Inc.: Current Year Previous Year Sales $18,500,000 $20,000,000 Beginning inventories 940,000 860,000 Cost of goods sold 9,270,000 10,800,000 Ending inventories 1,120,000 940,000

Current Year Previous Year
Sales $18,500,000 $20,000,000
Beginning inventories 940,000 860,000
Cost of goods sold 9,270,000 10,800,000
Ending inventories 1,120,000 940,000

Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory.

Answer 1

The inventory turnover for Keever Inc. was 9 times in the current year and 12 times in the previous year. The number of days' sales in inventory was 40.6 days in the current year and 30.4 days in the previous year.

Step-by-step explanation:

To calculate the inventory turnover, you need to divide the cost of goods sold by the average inventory. For the current year, the cost of goods sold is $9,270,000 and the average inventory is ($940,000 + $1,120,000) / 2 = $1,030,000. Therefore, the inventory turnover for the current year is $9,270,000 / $1,030,000 = 9 times. For the previous year, the cost of goods sold is $10,800,000 and the average inventory is ($860,000 + $940,000) / 2 = $900,000. Therefore, the inventory turnover for the previous year is $10,800,000 / $900,000 = 12 times.

To calculate the number of days' sales in inventory for each year, you need to divide 365 (number of days in a year) by the inventory turnover. For the current year, the number of days' sales in inventory is 365 / 9 = 40.6 days. For the previous year, the number of days' sales in inventory is 365 / 12 = 30.4 days.