Inventory AnalysiS The following data were extracted from the income statement o
ID: 2522967 • Letter: I
Question
Inventory AnalysiS The following data were extracted from the income statement of Brecca Systems Inc. Current Year Preceding Year Sales Beginning inventories Cost of goods sold Ending inventories $744,600 45,652 372,300 41,252 $775,300 47,584 430,700 55,784 a. (1). Determine for each year the inventory turnover. Round to one decimal place Current year Preceding year (2). Determine for each year the number of days' sales in inventory. Assume there are 365 days in the year. Round intermediate calculations to the nearest whole dollar and final answers to one decimal place. Current year Preceding year days days b. What conclusions can be drawn from these data concerning the inventories?Explanation / Answer
Answer a.
Current Year:
Average Inventories = ($45,652 + $41,252) / 2
Average Inventories = $43,452
Inventory Turnover = Cost of Goods Sold / Average Inventories
Inventory Turnover = $372,300 / $43,452
Inventory Turnover = 8.6 times
Preceding Year:
Average Inventories = ($47,584 + $55,784) / 2
Average Inventories = $51,684
Inventory Turnover = Cost of Goods Sold / Average Inventories
Inventory Turnover = $430,700 / $51,684
Inventory Turnover = 8.3 times
Answer b.
Current Year:
Number of days’ sales in inventory = 365 / Inventory Turnover
Number of days’ sales in inventory = 365 / 8.6
Number of days’ sales in inventory = 42.4 days
Preceding Year:
Number of days’ sales in inventory = 365 / Inventory Turnover
Number of days’ sales in inventory = 365 / 8.3
Number of days’ sales in inventory = 44.0 days
Answer c.
Company has improved its efficiency over the period
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