Question

The Opa's Carving Shop had the following financial data for the year ended December 31​, 2018​:

Cost of Goods Sold $484,000
Beginning Merchandise Inventory 88,800
Ending Merchandise Inventory 111,200

What are the inventory turnover and​ days' sales in inventory for the​ year? Compute Opa's Carving Shop​'s inventory turnover for the year.

Answer 1

Inventory turnover = 4.84 times.

Days Sales in inventory = 75.41 days.

Step-by-step explanation:

Inventory turnover ratio: Shows that how many times company has sold it's inventory.

• Formula:

`Inventory Turnover=(COGS)/(AverageInnventory)`

• Formula for Average Inventory:

`Average Inventory =(BeginingInventory + Ending Inventory)/(2)`

• Given Data:

COGS = $484,000

Average Inventory =
`=(88,800 + 111,200)/(2) = 100,000`

• Substituting values in the formula of Inventory Turnover:

`Inventory Turnover=(484,000)/(100,000) = 4.84 times.`

In the given year Opa has turned (sold or replaced) it's inventories 4.84 times.

Days Sales in Inventory (DSI): It represents the number of days the company took to turn (sell or replace) it's inventory.

• Formula:

`DSI= (AverageInvetory)/(COGS)* 365 days`

• Given Data:

COGS = $484,000

Average Inventory = 100,000

• Substituting values in the formula of DSI:

`DSI= (100,000)/(484,000)* 365 days = 75.41 days`

It took almost 75 days for Opa to turn(Sell or replace) it's inventory.