Chapter 16, Problem 10F15

To determine

Concept Introduction: Inventory Turnover and:

• Inventory Turnover ratio is a measure of the number of times an entity’s inventory is replaced in a year with respect to the entity’s cost of goods sold.
• It is essential to track the Inventory Turnover during a given period of time, such as a reporting period for Financial Statements, in order to see the strength of sales and volumes of sales and inventory rolled over during a reporting period.
• The higher the Inventory Turnover ratio, the greater the strength of the company’s sales and more is the inventory sold during a reporting period.

  $\text{Inventory Turnover Ratio =}\frac{\text{Company's Cost of Goods Sold over the reporting period}}{\text{Average Balance of Inventory over the reporting period}}$

Average Sale Period

• Average Sale period is the Average number of days that it takes to sell the average inventory procured over the course of a reporting period.
• Average Sale period is calculated in Days by dividing 365 Days by the Inventory turnover ratio.
• Average Sale period helps in tracking the reconciliation between the average time that inventory is rolled over and costs of having inventory on hand

  $\text{Average Sale Period =}\frac{\text{365}}{\text{Inventory Turnover Ratio}}$

To Compute:

Inventory Turnover and Average Sale Period