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
