Q6TI - Horngren'S Financial And Managerial Accounting

Question

The Opa’s Carving Shop had the following financial data for the year ended December 31, 2018:

                           Cost of Goods Sold                                 $484,000

                           Beginning Merchandise Inventory            88,800

                           Ending Merchandise Inventory                 111,200

 

What are the inventory turnover and days’ sales in inventory for the year?

Step-by-Step Solution

Answer

Inventory Turnover: 4.84

Days’ Sales in Inventory: 75.41 days

Step 1: Inventory Turnover

$\begin{array}{c}\mathbf{Inventory}\mathbf{ }\mathbf{Turnover}\mathbf{=}\frac{\mathbf{Cost}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{goods}\mathbf{ }\mathbf{sold}}{\mathbf{Average}\mathbf{ }\mathbf{Inventory}}\\ \mathbf{=}\frac{\mathbf{\$}\mathbf{484}\mathbf{,}\mathbf{000}}{\frac{\mathbf{\$}\mathbf{88}\mathbf{,}\mathbf{800}\mathbf{+}\mathbf{\$}\mathbf{111}\mathbf{,}\mathbf{200}}{\mathbf{2}}}\\ \mathbf{=}\frac{\mathbf{\$}\mathbf{484}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{100}\mathbf{,}\mathbf{000}}\\ \mathbf{=}\mathbf{4}\mathbf{.}\mathbf{84}\end{array}$

Step 2: Days’ Sales in inventory

$\begin{array}{c}\mathbf{D}\mathbf{a}\mathbf{y}\mathbf{s}\mathbf{\text{'}}\mathbf{ }\mathbf{S}\mathbf{a}\mathbf{l}\mathbf{e}\mathbf{s}\mathbf{ }\mathbf{i}\mathbf{n}\mathbf{ }\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{=}\frac{\mathbf{N}\mathbf{o}\mathbf{.}\mathbf{ }\mathbf{o}\mathbf{f}\mathbf{ }\mathbf{d}\mathbf{a}\mathbf{y}\mathbf{s}\mathbf{ }\mathbf{i}\mathbf{n}\mathbf{ }\mathbf{a}\mathbf{ }\mathbf{y}\mathbf{e}\mathbf{a}\mathbf{r}}{\mathbf{I}\mathbf{n}\mathbf{v}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{o}\mathbf{r}\mathbf{y}\mathbf{ }\mathbf{T}\mathbf{u}\mathbf{r}\mathbf{n}\mathbf{o}\mathbf{v}\mathbf{e}\mathbf{r}}\\ \mathbf{=}\frac{\mathbf{365}}{\mathbf{4}\mathbf{.}\mathbf{84}}\\ \mathbf{=}\mathbf{75}\mathbf{.}\mathbf{41}\mathbf{d}\mathbf{a}\mathbf{y}\mathbf{s}\end{array}\mathbf{ }$