Explanation:
The computation of inventory turnover and the days sales in inventory is shown below:
Inventory turnover ratio equals to
= Cost of goods sold ÷ average inventory
where,
Average inventory = (Opening balance of inventory + ending balance of inventory) ÷ 2
For 2017, it would be
= $(578,825) ÷ {($102,900 + $93,250) ÷ 2}
= $(578,825) ÷ ($98,075)
= 5.90 times
For 2016, it would be
= ($361,650) ÷ {($98,000 + $93,250) ÷ 2}
= ($361,650) ÷ ($95,625)
= 3.78 times
Now the days sales in inventory is
= Total number of days in a year ÷ inventory turnover ratio
For 2017, it would be
= 365 days ÷ 5.90 times
= 61.86 days
For 2016, it would be
= 365 days ÷ 3.78 times
= 96.56 days
We assume there are 365 days in a year
