Question

The following is information for Palmer Company. Year 3 Year 2 Year 1 Cost of goods sold $ 643,825 $ 426,650 $ 391,300 Ending inventory 97,400 87,750 92,500 Use the above information to compute inventory turnover for Year 3 and Year 2, and its days' sales in inventory at December 31, Year 3 and Year 2. From Year 2 to Year 3, did Palmer improve its (a) inventory turnover and (b) days' sales in inventory

Answer 1

If  Palmer Company. Year 3 Year 2 Year 1 Cost of goods sold $ 643,825 $ 426,650 $ 391,300 Ending inventory 97,400 87,750 92,500 compute inventory turnover for Year 3 and Year 2, and its days' sales in inventory at December 31, Year 3 and Year 2:

a) Inventory turnover for Year 2, and its days' sales in inventory at December 31, Year 2

Inventory turnover =$426,650/($92,500+$87,750)/2

Inventory turnover=$426,650/$90,125

Inventory turnover=4.7 times

Days' sales in inventory=$87,750/$ 426,650×365 days

Days' sales in inventory=$87,750

Days' sales in inventory=75.07 days

b) Inventory turnover for Year 3, and its days' sales in inventory at December 31, Year 3

Inventory turnover=$643,825 /($87,750+$97,400)/2

Inventory turnover=$643,825/$92,575

Inventory turnover=6.95 times

 

Days' sales in inventory=$97,400/$643,825×365 days

Days' sales in inventory=55.22 days

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