Question

W. Glass & Company reported the following information in its recent annual report: 2015 2016Cost of goods sold $4,000,000 $4,600,000Beginning inventory $900,000 860,000Ending inventory 860,000 640,000Calculate the company’s inventory turnover and days’ sales in inventory for both years.

Answer 1

Answer:

2015 inventory turnover is 4.5

2016 inventory turnover is 6.1

Explanation:

Inventory turnover is computed by dividing Cost of goods sold over average inventory.

First step: Compute the Average inventory for the period. Average inventory is simply Beginning inventory plus Ending inventory divided by 2.

2015:

($900,000 + $860,000) / 2 = $880,000

2016:

($860,000 + $640,000) / 2 = $750,000

Finally, we can now compute the inventory turnover by dividing Cost of Goods Sold over Average inventory.

2015:

$4,000,000 / $880,000 = 4.5

2016:

$4,600,000 / $750,000 = 6.1