Inventory Analysis QT, Inc. and Elppa Computers, Inc. compete with each other in

Question

Inventory Analysis

QT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions):

a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round your calculations and answers to one decimal place. Assume 365 days a year.

b. QT has a much higher inventory turnover ratio than does Elppa. Likewise, QT has a much smaller number of days' sales in inventory. These significant differences are a result of QT's make-to-order strategy.

QT
Elppa Sales $56,940 $120,357 Cost of goods sold 44,754 92,385 Inventory, beginning of period 1,382 6,317 Inventory, end of period 1,404 7,490

Explanation / Answer

Inventory turnover ratio = cost of goods sold / ((Beginning inventory + Ending inventory) /2)

Days sales in inventory = Inventory / cost of sales *365

QT Elppa Cost of Goods sold $ 44,754 $ 92,385 Beginning Inventory $    1,382 $    6,317 Ending Inventory $    1,404 $    7,490 Inventory Turnover Ratio 32.13 13.38

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