Chapter 6, Problem 13E

To determine

Concept Introduction:

Inventory Turnover Ratio: Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:

$InventoryTurnoverRatio=\frac{Costofgoodssold}{Averageinventory}$

Note: Average inventory is calculated with the help of following formula:

$Averageinventory=\frac{(Beginninginventory+Endinginventory)}{2}$

Day’s sales in inventory: Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated by dividing the 365 days by Inventory Turnover Ratio. The formula of the Days sales in inventory is as follows:

$Dayssalesininventory=\frac{365}{InventoryTurnoverRatio}$

To determine: The Inventory turnover ratio and days sales in inventory for 2017 and 2016 and comment on the company’s efficiency to increase sales from 2016 to 2017.