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5 July, 17:27

inventory Turnover and Days' Sales in Inventory The following financial statement data for years ending December 31 for Holland Company are shown below. 20Y4 20Y3 Cost of merchandise sold $1,489,200 $945,934 Inventories: Beginning of year 359,160 251,120 End of year 516,840 359,160 a. Determine the inventory turnover for 20Y4 and 20Y3. Round to one decimal place. Inventory Turnover 20Y4 20Y3 b. Determine the days' sales in inventory for 20Y4 and 20Y3. Assume 365 days a year. Round interim calculations and final answers to one decimal place. Days' Sales in Inventory 20Y4 days 20Y3 days

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  1. 5 July, 18:17
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    Year 2014 Year 2013

    a) Inventory Turnover ratio 3.4 times and 3.1 times

    b) Number of days' sales in inventory 107.3 days and 117.7 days

    Explanation:

    As per the data given in the question,

    As we know that

    Inventory turnover ratio = Cost of goods sold : Average inventory

    where,

    Average inventory

    = (Beginning inventory + ending inventory) : 2

    For Year 20Y4:

    Average inventory = ($359,160 + $516,840) : 2

    = $438,000

    And, the cost of goods sold is $1,489,200

    So,

    Inventory Turnover ratio

    = $1,489,200 : $438,000

    = 3.4 times

    For Year 20Y3:

    Average inventory = ($251,120 + $359,160) : 2

    = $305,140

    And, the cost of goods sold is $945,934

    So,

    Inventory Turnover ratio

    = $945,934 : $305,140

    = 3.1 times

    Now

    Number of days' sales in inventory = Number of days in a year : Inventory Turnover ratio

    For 20Y4

    = 365 days : 3.4

    = 107.3 days

    For 20Y3

    = 365 days : 3.1

    = 117.7 days

    Basically we applied the above formulas
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