Question

Perez Corporation has the following financial data for the years 20X1 and 20X2: 20X1 20X2 Sales $ 8,000,000 $ 10,000,000 Cost of goods sold 6,000,000 9,000,000 Inventory 800,000 1,000,000 a. Compute the inventory turnover for each year using the formula Sales/Inventory. (Round your answers to 2 decimal places.) b. Compute inventory turnover based on an alternative calculation that is used by many financial analysts, Cost of goods sold/Inventory, for each year. (Round your answers to 2 decimal places.)

Answer 1

Explanation:

The computations are shown below:

a. Inventory turnover = Sales ÷ Inventory

For 20X1:

Inventory turnover = Sales ÷ Inventory

=$8,000,000 ÷ $800,000

= 10 times

For 20X2:

Inventory turnover = Sales ÷ Inventory

=$8,000,000 ÷ $800,000

= 10 times

b) Inventory turnover = Cost of goods sold ÷ Inventory

For 20X1:

Inventory turnover = Cost of goods sold ÷ Inventory

= $6,000,000 ÷ $800,000

= 7.5 times

For 20X21:

Inventory turnover = Cost of goods sold ÷ Inventory

= $9,000,000 ÷ $1,000,000

= 9 times