Chapter 5, Problem 2BTN

1.

Summary Introduction

Concept Introduction:

Inventory Turnover ratio: It tells the company about how many times the inventory is available of cost of goods sold. It helps us in the calculation of the number of days in which the inventory is sold by the company. It helps to make a better record of inventory.

To Calculate: Inventory turnover of 2 companies.

Answer to Problem 2BTN

Company 1^st => (Current year)= 53.18times.

(Previous year)= 60.43 times.

Company 2^nd => (Current year)= infinite.

(Previous year)= 51.63 times.

Explanation of Solution

  $\begin{array}{l}\text{Inventory Turnover ratio= }\frac{\text{Cost of sales}}{\text{Inventory}}\hfill \\ {\text{Company 1}}^{\text{st}}\left(\text{Current year}\right)\text{ = }\frac{\text{112258}}{\text{2111}}\hfill \\ \text{ = 53}\text{.18times}\text{.}\hfill \\ {\text{Company 1}}^{\text{st}}\left(\text{Previous year}\right)\text{ = }\frac{\text{106606}}{\text{1764}}\hfill \\ \text{ = 60}\text{.43times}\text{.}\hfill \\ {\text{Company 2}}^{\text{nd}}\left(\text{Current year}\right)\text{ = }\frac{\text{25691}}{0}\hfill \\ \text{ = infinite}\text{.}\hfill \\ {\text{Company 1}}^{\text{st}}\left(\text{Previous year}\right)\text{ = }\frac{\text{21993}}{\text{426}}\hfill \\ \text{ = 51}\text{.63times}\text{.}\hfill \end{array}$

2.

Summary Introduction

Concept Introduction:

Inventory Turnover ratio: It tells company about how many times inventory available of cost of goods sold. It helps us in calculation of no. of days in which inventory is sold by company. It helps in to make better record of inventory.

To Calculate: Day’s sales of inventory.

Answer to Problem 2BTN

Company 1^st (Current Year) = 6.86 days

(Previous Year) = 6 days

(2 Year Back) = 3.29 days

Company 2^nd (Current Year) = 0

(Previous Year) = 7.07 days

(2 Year Back) = 10.73 days

Explanation of Solution

  $\begin{array}{l}\text{Day’s sales of inventory= }\frac{\text{365}}{\text{Inventory turnover ratio}}\hfill \\ {\text{Company 1}}^{\text{st}}\left(\text{Current year}\right)\text{= }\frac{\text{365}}{\text{53}\text{.18 times}}\text{= 6}\text{.86 days}\hfill \\ \left(\text{Previous year}\right)\text{= }\frac{\text{365}}{\text{60}\text{.43 times}}\text{ = 6 days}\hfill \\ \left(\text{2 year back}\right)\text{ = 365}÷\left(\frac{\text{87846}}{\text{791}}\right)\text{= 3}\text{.29 days}\hfill \\ {\text{Company 2}}^{\text{nd}}\left(\text{Current year}\right)\text{= }\frac{\text{365}}{\text{infinite}}\text{= 0 days}\hfill \\ \left(\text{Previous year}\right)\text{= }\frac{\text{365}}{\text{51}\text{.63 times}}\text{ = 7}\text{.07 days}\hfill \\ \left(\text{2 year back}\right)\text{ = 365}÷\left(\frac{\text{17176}}{\text{505}}\right)\text{= 10}\text{.73 days}\hfill \\ \hfill \end{array}$

Summary Introduction

Concept Introduction:

Inventory Turnover ratio: It tells company about how many times inventory available of cost of goods sold. It helps us in calculation of no. of days in which inventory is sold by company. It helps in to make better record of inventory.

Requirement-2:

To Calculate:

Comment on above findings.

Answer to Problem 2BTN

Company 1^st have higher inventory turnover than the industry average.

Company 2^nd have higher inventory turnover ratio in 2 years out of 3 years.

Explanation of Solution

Company 1^st have inventory turnover is more than the 40 (industry average). Company have inventory turnover ratio is 53.18 times in current year, 60.43 in previous year and 111 times before 2 years.

Company 2^nd have inventory turnover is more than the 40 (industry average) in 2 years. Company have inventory turnover ratio is infinite in current year, 51.63 times in previous year and 34 times (less than industry average.) Before 2 years.