Question

Inventory AnalysisThe following data were extracted from the income statement of Keever Inc.: Current Year Previous YearSales $18,500,000 $20,000,000 Beginning inventories 940,000 860,000 Cost of goods sold 9,270,000 10,800,000 Ending inventories 1,120,000 940,000 a. Determine for each year (1) the inventory turnover and (2) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year. Current Year Previous Year1. Inventory turnover 2. Number of days' sales in inventory days daysb. The inventory position of the business has deteriorated . The inventory turnover has decreased , while the number of days' sales in inventory has increased . The sales volume has declined faster than the inventory, resulting in a deteriorating inventory position.

Answer 1

Answer:

(1) the inventory turnover

• previous year: 12
• current year: 9

and (2) the number of days' sales in inventory

previous year: 30.4 days

current year: 40.6 days

Inventory turnover decreased while days' sales in inventory increased. This means that the company's inventory position has deteriorated.

Explanation:

                                           Current Year                 Previous Year

Sales                                  $18,500,000                 $20,000,000

Beginning inventories           $940,000                       $860,000

Cost of goods sold             $9,270,000                  $10,800,000

Ending inventories               $1,120,000                      $940,000

inventory turnover = COGS / average inventory:

previous year: $10,800,000 / [($860,000 + $940,000)/2] = 12

current year: $9,270,000 / [($1,120,000 + $940,000)/2] = 9

number of days' sales in inventory = 365 / inventory turnover

previous year: 365 / 12 = 30.4 days

current year: 365 / 9 = 40.6 days