Question

Inventory Analysis 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 a. Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year.

Answer 1

Inventory turnover

Current year= 9 times

Previous year= 12.1 times

Inventory days

Current year = 40.6 days

Previous year = 30.1 days

Step-by-step explanation:

Inventory turnover is the average length of time it takes the item of stock to be sold and replaced. It can be measured in days or in number of times.

Inventory turnover (number of times) =cost of goods sold/average inventory

Inventory turnover days = (Average inventory /cost of good sold)× 365 days

Note average inventory = (opening inventory + closing inventory)/2

Average inventory (current year): ( 940,000+1,120,000)/2 = 1,030,000.00

Average inventory (previous):( 840000+940000)/2 =890,000

Inventory turnover

Current year= 9270,000/1,030,000= 9 times

Previous year= 10,800,000/890,000= 12.13 times

Inventory days

Current year = (1,030,000/9,270,000)× 365 days= 40.6 days

Previous year = (890,000/10,800,000)× 365 days = 30.1 days