Inventory Turnover and Days\' Sales in Inventory The Northern Company installed

Question

Inventory Turnover and Days' Sales in Inventory The Northern Company installed a new inventory management system at the beginning of 2012. Shown below are data from the company's accounting records as reported out by the new system: 2012 2013 Sales Revenue 0 11,000,000 Cost of Goods Sold 5,000,000 5,900,000 Beginning Inventory 74, 770,000 Ending Inventory 770,000 840,000 Calculate the company's (a) inventory turnover and (b) days' sales in inventory for 2012 and 2013. Round your answer to two decimal points. 2012 2013 nventory turnover Days' sales in inventory

Explanation / Answer

Calculate inventory turnover and day's sales in inventory :

Inventory turnover = Cost of goods sold/average inventory

Days' sales in inventory = 365/ inventory turnover

2012 2013 Average inventory (740000+770000/2) = 755000 (770000+840000/2) = 805000 Inventory turnover (5000000/755000) = 6.62 times (5900000/805000) = 7.33 times Days' sales in inventory (365/6.62) = 55.14 days (365/7.33) = 49.80 days

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