Question

Carla Vista Inc. has sales of $2,300,000, a gross profit margin of 24.0 percent, and inventory of $800,000. What are the company’s inventory turnover ratio and days’ sales in inventory? (Round inventory turnover ratio to 3 decimal places, e.g. 12.555 and days' sales in inventory to 1 decimal place, e.g. 12.5. Use 365 days for calculation.)

Answer 1

Answer:

Inventory turnover ratio= 2.185 times

Day's sales in inventory = 167.05 days

Explanation:

Carla Vista incorporation has a sales of $2,300,000

The gross profit margin is 24%

The inventory is $800,000

The First step is to calculate the cost of goods sold

= Sales-gross profit margin×sales

= 2,300,000-(0.24×2,300,000)

=2,300,000-552,000

=$1,748,000

Therefore the inventory turnover ratio can be calculated as follows

Inventory turnover ratio= 1,748,000/800,000

= 2.185 times

Day's sales in inventory can be calculated as follows

= 365/ inventory turnover ratio

= 365/2.185

= 167.05 days