Question E9-23 - Intermediate Accounting (Kieso)

Question

The financial statements of ConAgra Foods, Inc.’s 2014 annual report disclose the following information. (in millions) 2014 2013 2012 Year-end inventories \(2,201 \)2,077 \(2,341 Fiscal Year 2014 2013 Net sales \)17,703 $15,427 Cost of goods sold 13,980 11,864 Net income 315 786Instructions Compute ConAgra’s (a) inventory turnover and (b) the average days to sell inventory for 2014 and 2013.

Step-by-Step Solution

Answer

1. Inventory turnover for 2013 and 2014 equals 5.37 times and 6.54 times.
2. Average days to sell inventory for 2013 and 2014 equals 67.97 days and 55.81 days

Calculation of inventory turnover for 2013

Inventory turnover for 2013 is calculated as follows:

$$\begin{gathered} \mathrm{Inventory} \mathrm{Turnover} \mathrm{for} 2013=\frac{\mathrm{Cost} \mathrm{of} \mathrm{Goods} \mathrm{Sold}}{\left({\displaystyle \frac{\mathrm{Beginning} \mathrm{Inventory}+\mathrm{Ending} \mathrm{Inventory}}{2}}\right)} \\ =\frac{\$11,864}{\left({\displaystyle \frac{\$2,341+\$2,077}{2}}\right)} \\ =5·37 \end{gathered}$$

 

Calculation of average days to sell inventory for 2013

Average days to sell inventory is calculated as follows: 

$$\begin{gathered} \mathrm{Average} \mathrm{Days} \mathrm{to} \mathrm{Sell} \mathrm{Inventory}=\frac{365}{\mathrm{Inventory} \mathrm{Turnover} \mathrm{for} 2013} \\ =\frac{365}{5.37} \\ =67·97\mathrm{Days} \end{gathered}$$

 

Calculation of inventory turnover for 2014

Inventory turnover for 2014 is calculated as follows:

$$\begin{gathered} \mathrm{I}\mathrm{nventory} \mathrm{Turnover} \mathrm{for} 2014=\frac{\mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold}}{\left({\displaystyle \frac{\mathrm{Beginning} \mathrm{Inventory}+\mathrm{Ending} \mathrm{Inventory}}{2}}\right)} \\ =\frac{\$13,980}{\left({\displaystyle \frac{\$2,077+\$2,201}{2}}\right)} \\ =6·54 \end{gathered}$$

 

Calculation of average days to sell inventory for 2014

Average days to sell inventory is calculated as follows: 

 

$$\begin{gathered} \mathrm{Average} \mathrm{Days} \mathrm{to} \mathrm{Sell} \mathrm{Inventory}=\frac{365}{\mathrm{Inventory} \mathrm{Turnover} \mathrm{for} 2014} \\ =\frac{365}{6·54} \\ =55·81 \mathrm{Days} \end{gathered}$$

 

Thus inventory turnover for 2013 and 2014 is 5.37 and 6.54, and the average days to sell inventory for 2013 and 2014 are 67.97 days and 55.81 days.