Question

The cost of goods sold computations for Alpha Company and Omega Company are shown below. Alpha Company Omega Company Beginning inventory $ 49,500 $ 71,000 Cost of goods purchased 200,000 299,000 Cost of goods available for sale 249,500 370,000 Ending inventory 57,000 73,000 Cost of goods sold $192,500 $297,000

Answer 1

Answer:

Alpha Company:

• inventory turnover ratio = 3.62
• days in inventory = 101 days

Omega Company

• inventory turnover ratio = 4.13
• days in inventory = 89 days

Explanation:

                                         Alpha Company       Omega Company

Beginning inventory                $49,500                       $71,000

Cost of goods purchased     $200,000                   $299,000

Cost of goods available

for sale                                   $249,500                    $370,000

Ending inventory                     $57,000                      $73,000

Cost of goods sold                 $192,500                   $297,000

inventory turnover rate = cost of goods sold / the average inventory

average inventory = (beginning inventory + ending inventory) / 2

days in inventory = 365 days / inventory turnover ratio

                                          Alpha Company             Omega Company

average inventory                  $53,250                         $72,000

inventory turnover         $192,500 / $53,250      $297,000 / $72,000

                                           = 3.62                              = 4.13

days in inventory             365 / 3.62                        365 / 4.13

                                        = 100.83 ≈ 101 days          = 88.38 ≈ 89 days