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10 April, 14:22

The following is information for Palmer Co. Year 3 Year 2 Year 1 Cost of goods sold $ 643,825 $ 426,650 $ 391,300 Ending inventory 97,400 87,750 92,500 Use the above information to compute inventory turnover for Year 3 and Year 2, and its days' sales in inventory at December 31, Year 3 and Year 2

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  1. 10 April, 17:43
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    Inventory turnover

    Year 3 6.95 times

    Year 2 4.73 times

    Year 1 4.23 times

    Days Sales In Inventory

    Year 3 55.22 days

    Year 2 75.07 days

    Year 1 86.28 days

    Explanation:

    Inventory turnover is the ratio that how many time a business has sold or replaced the inventory during a given period. A business is considered more profitable if it has high inventory turnover.

    According to given data

    Year 3 Year 2 Year 1

    Merchandise inventory 97,400 87,750 92,500

    Cost of goods sold $643,825 $426,650 $391,300

    Inventory turnover = Cost of Goods Sold / Average Inventory value

    Inventory turnover = Cost of Goods Sold / [ (Opening Inventory + Closing Inventory) / 2 ]

    Year 3

    Inventory Turnover = $643,825 / [ (97400 + 87750) / 2 ] = 6.95

    Year 2

    Inventory Turnover = $426,650 / [ (87750 + 92500) / 2 ] = 4.73

    Year 1

    Inventory Turnover = $391,300 / 92500 = 4.23

    As there will be no Beginning inventory so average inventory will be same as the closing inventory is the same as the Closing Inventory.

    Days Sales In Inventory = 365 x Ending Inventory / Cost of Goods Sold

    Year 3

    Days Sales In Inventory = 365 x 97,400 / $643,825 = 55.22 days

    Year 2

    Days Sales In Inventory = 365 x 87,750 / $426,650 = 75.07 days

    Year 1

    Days Sales In Inventory = 365 x 92,500 / $391,300 = 86.28 days
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