1) Calculate the inventory turnover using the following data for the current yea
ID: 2484749 • Letter: 1
Question
1) Calculate the inventory turnover using the following data for the current year 2014
Net sales on account during 2014
$ 500,000
Cost of merchandise sold during 2014
330,000
Accounts receivable, Jan 1, 2014
45,000
Accounts receivable, December 31, 2014
35,000
Inventory, Jan 1, 2014
90,000
Inventory, December 31, 2014
110,000
a.
3.3
b.
8.3
c.
3.7
d.
3.0
2) Benjamin Nautical Company has several divisions which are investment centers. Data for the Sail Boat Division and the Yacht Trailer Division are shown here:
Sail Boat Division
Yacht Division
Operating income
$90,000
$36,000
Total assets at Jan 1
$670,000
$230,000
Total assets at Dec 31
$710,000
$220,000
Which of the following statements would be the most meaningful interpretation of this data?
A) Performance of Sail Boat Division is better than that of Yacht Division because Sail Boat Division has higher assets.
B) Yacht Division uses its assets more efficiently than Sail Boat Division because it has higher ROI.
C) Sail Boat Division shows more efficient use of assets than Yacht Division because it has higher operating income.
D) Sail Boat Division is more financially successful than Yacht Division because it shows an increase in assets
3) C K Venkat Chemicals estimates for July are as follows:
Estimated inventory (units), July 1
8,500
Desired inventory (units), July 31
10,500
Expected sales volume (units), July
76,000
For each unit produced, the direct materials needed are:
Direct material A ($5 per lb.)
3 lbs.
Direct material B ($18 per lb.)
1/2 lb.
Calculate the total direct materials purchases of materials A and B (assuming no beginning or ending material inventory) required for July productions:
a.
$1,080,000 for A; $648,000 for B
b.
$1,080,000 for A; $1,296,000 for B
c.
$1,170,000 for A; $702,000 for B
d.
$1,125,000 for A; $675,000 for B
4) Jackson Company had a finished goods inventory of 55,000 units on January 1. It's projected sales for the next four months were: January - 200,000 units; February - 180,000 units; March - 210,000 units; and April - 230,000 units. The Jackson Company wishes to maintain a desired ending finished goods inventory of 20% of the following month’s sales.
Calculate the budgeted production for January?
a.
236,000
b.
181,000
c.
200,000
d.
219,000
Net sales on account during 2014
$ 500,000
Cost of merchandise sold during 2014
330,000
Accounts receivable, Jan 1, 2014
45,000
Accounts receivable, December 31, 2014
35,000
Inventory, Jan 1, 2014
90,000
Inventory, December 31, 2014
110,000
Explanation / Answer
1. The correct answer is a. 3.3
Inventory turnover is calculated as cost of merchandise sold / average inventory. It is therefore 330,000 / 100,000
= 3.3
2. The correct answer is B, Yacht division uses its assets more efficiently than Sail Boat division because it has a higher ROI.
ROI for Sail Boat division = Operating income / Average total assets = 90,000 / 690,000 =13.04%
ROI for Yacht division = 36,000 / 225,000 = 16%
3. The correct option is c: $ 1,170,000 for A and $ 702,000 for B
Workings: Purchases required for July = ending inventory + sales for July - beginning inventory = 10,500+76,000 -8,500 = 78,000 units
For material A 78,000 x 3 x 5 = $ 1,170,000
For material B 78,000 X 0.5 x 18 = $ 702,000
4. The correct answer is b. 181,000.
Beginning inventory for January 55,000 units.
Desired ending inventory is 20% of February sales, i.e 36,000.
Sales during January is 200,000 units. Therefore production required for January is 36,000 + 200,000 -55,000
= 181,000 units
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