Inventory Turnover and Number of Days Sales in Inventory 2016 $4,504,500 $ $788,

Question

Inventory Turnover and Number of Days Sales in Inventory 2016 $4,504,500 $ $788,000 2015 $3,715,200 $760,000 Cost of Merchandise Sold: Inventories Beginning of the Year End of the Year a) Determine the Inventory Turnover for 2016 and 2015- b) Determine the Number of Days Sales in Inventory for 2016 and 2015. Use 365 $850,000 $ 788,000 5.5 and r for 2016 and 2015 days and round to the nearest one decimal place 169.9 Inventory Turnover 2016 Inventory Turnover 2015 12341 Days Sales In Inventory 2016 Days Sales in Inventory 2015 What does this analysis tell you This atalyis tels ta c) Comp ony had a aro ate a

Explanation / Answer

a. Inventory turnover ratio = cost of goods sold/average inventory

2016: average inventory = (788,000+850,000)/2 = 819,000

Thus inventory turnover ratio for 2016 = 4,504,500/819,000 = 5.50

2015: average inventory = 760,000+788,000/2 = 774,000. Thus inventory turnover ratio for 2015 = 3,715,200/774,000 = 4.80

b. Number of days sale in inventory = 365/inventory turnover ratio

2016: 365/5.50 = 66.36

2015: 365/4.80 = 76.04

c. We can see that the company's inventory turnover ratio has inceased from 2105 to 2016 and as a result its number of days sale in inventory has declined during the same period. This means that the company is more effectively managing its inventory in 2016 compared to 2015. Average inventory is being turned or sold 5.50 times in 2016 (higher than 2015's figure of 2015).

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