Question

he following financial statement data for years ending December 31 for Holland Company are shown below. 20Y4 20Y3 Cost of merchandise sold $1,489,200 $945,934 Inventories: Beginning of year 359,160 251,120 End of year 516,840 359,160 a. Determine the inventory turnover for 20Y4 and 20Y3. Round to one decimal place. Inventory Turnover 20Y4 20Y3 b. Determine the days' sales in inventory for 20Y4 and 20Y3. Assume 365 days a year. Round interim calculations and final answers to one decimal place. Days' Sales in Inventory 20Y4 days 20Y3 days

Answer 1

Answer:

                                             Year 2014           Year 2013

a) Inventory Turnover ratio 3.4 times  and   3.1 times

b) Number of days' sales in inventory 107.3 days and  117.7 days

Explanation:

As per the data given in the question,

For Year 2014 :

Average inventory = ($359,160 + $516,840)÷2

= $438,000

Inventory Turnover ratio = $1,489,200÷$438,000

= 3.4 times

For Year 2013 :

Average inventory = ($251,120 + $359,160)÷2

= $305,140

Inventory Turnover ratio = $945,934÷$305,140

= 3.1 times

Number of days' sales in inventory = Number of days in a year ÷ Inventory Turnover ratio

For 2014 = 365÷3.4 = 107.3 days

For 2013 = 365÷3.1 = 117.7 days