Chapter 6, Problem 9BTN

Requirement 1 (a);

To determine

To calculate:

Inventory turnover ratio for the Samsung, Apple and Google Company.

Answer to Problem 9BTN

Solution:

1. Inventory turnover for Samsung company;

  $\begin{array}{l}\text{Inventory turnover for current year = }\frac{\$\text{137696309}}{\text{\$18441140}\text{.50}}\\ =\text{ 7}\text{.47 Times}\end{array}$

  $\begin{array}{l}\text{Inventory turnover for one year prior = }\frac{\text{\$126651931}}{\text{\$16732064}}\\ =\text{ 7}\text{.57 Times}\end{array}$

2. Inventory turnover for Apple Company;

  $\begin{array}{l}\text{Inventory turnover for current year = }\frac{\$106606}{\$1277.50}\\ =\text{ 83}\text{.45 Times}\end{array}$

  $\begin{array}{l}\text{Inventory turnover for one year prior = }\frac{\$87846}{\$783.50}\\ =\text{ 112}\text{.12 Times}\end{array}$

3. Inventory turnover for Google Company;
  $\begin{array}{l}\text{Inventory turnover for current year = }\frac{\$25858}{\$465.50}\\ =\text{ 55}\text{.55 Times}\end{array}$

  $\begin{array}{l}\text{Inventory turnover for one year prior = }\frac{\$20634}{\$270}\\ =\text{ 76}\text{.42 Times}\end{array}$

Explanation of Solution

  $\begin{array}{l}\text{1}\text{. Inventory turnover for Samsung company will be calculated as follow;}\\ \text{Inventory turnover ratio = }\frac{\text{Cost of sale}}{\text{Average Inventory}}\\ \text{For current year;}\\ \text{Cost of sale is given = \$137696309}\\ \text{Average Inventory (\$19134868 + \$17747413) / 2 = \$18441140}\text{.50}\\ \text{Now, let's put values in above given formula;}\\ \text{Inventory turnover for current year = }\frac{\$\text{137696309}}{\text{\$18441140}\text{.50}}\\ =\text{ 7}\text{.47 Times}\\ \\ \text{For one year prior;}\\ \text{Cost of sale is given = \$126651931}\\ \text{Average Inventory (\$15716715 + \$17747413) / 2 = \$16732064}\\ \text{Now, let's put values in above given formula;}\\ \text{Inventory turnover for one year prior = }\frac{\text{\$126651931}}{\text{\$16732064}}\\ =\text{ 7}\text{.57 Times}\\ \text{2}\text{. Inventory turnover for Apple company will be calculated as follow;}\\ \text{Inventory turnover ratio = }\frac{\text{Cost of sale}}{\text{Average Inventory}}\\ \text{For current year;}\\ \text{Cost of sale is given = \$106606}\\ \text{Average Inventory (\$1764 + \$791) / 2 = \$1277}\text{.50}\\ \text{Now, let's put values in above given formula;}\\ \text{Inventory turnover for current year = }\frac{\$106606}{\$1277.50}\\ =\text{ 83}\text{.45 Times}\\ \\ \text{For one year prior;}\\ \text{Cost of sale is given = \$87846}\\ \text{Average Inventory (\$791 + \$776) / 2 = \$783}\text{.50}\\ \text{Now, let's put values in above given formula;}\\ \text{Inventory turnover for one year prior = }\frac{\$87846}{\$783.50}\\ =\text{ 112}\text{.12 Times}\\ \\ \text{3}\text{. Inventory turnover for Google company will be calculated as follow;}\\ \text{Inventory turnover ratio = }\frac{\text{Cost of sale}}{\text{Average Inventory}}\\ \text{For current year;}\\ \text{Cost of sale is given = \$25858}\\ \text{Average Inventory (\$426 + \$505) / 2 = \$465}\text{.50}\\ \text{Now, let's put values in above given formula;}\\ \text{Inventory turnover for current year = }\frac{\$25858}{\$465.50}\\ =\text{ 55}\text{.55 Times}\\ \\ \text{For one year prior;}\\ \text{Cost of sale is given = \$20634}\\ \text{Average Inventory (\$505 + \$35) / 2 = \$270}\\ \text{Now, let's put values in above given formula;}\\ \text{Inventory turnover for one year prior = }\frac{\$20634}{\$270}\\ =\text{ 76}\text{.42 Times}\end{array}$

Conclusion

Thus above made inventory turnover ratio for Apple and Google companies

Requirement 1 (b);

To determine

To calculate:

Days’ sales in inventory for the Samsung, Apple and Google company..

Answer to Problem 9BTN

Solution:

  $\begin{array}{l}\text{1}\text{. Days' sales in inventory for Samsung company will be calculated as follow;}\\ \text{For current year;}\\ \text{Days' sales in inventory for current year = }\frac{\text{\$19134868}}{\text{\$137696309}}\text{ x 365}\\ =\text{ 50}\text{.72 Days or 51 Days}\\ \\ \text{For one year prior;}\\ \text{Days' sales in inventory for one year prior = }\frac{\text{\$17747413}}{\text{\$126651931}}\text{ x 365}\\ =\text{ 51}\text{.15 Days or 51 Days}\\ \end{array}$

  $\begin{array}{l}\text{2}\text{. Days' sales in inventory for Apple company will be calculated as follow;}\\ \text{For current year;}\\ \text{Days' sales in inventory for current year = }\frac{\$1764}{\$106606}\text{ x 365}\\ =\text{ 6}\text{.04 Days or 6 Days}\\ \\ \text{For one year prior;}\\ \\ \text{Days' sales in inventory for one year prior = }\frac{\$791}{\$87846}\text{ x 365}\\ =\text{ 3}\text{.29 Days or 3 Days}\end{array}$

  $\begin{array}{l}\text{3}\text{. Days' sales in inventory for Google company will be calculated as follow;}\\ \text{For current year;}\\ \text{Days' sales in inventory for current year = }\frac{\$426}{\$25858}\text{ x 365}\\ =\text{ 6}\text{.01 Days or 6 Days}\\ \\ \text{For one year prior;}\\ \\ \text{Days' sales in inventory for one year prior = }\frac{\$505}{\$20634}\text{ x 365}\\ =\text{ 8}\text{.93 Days or 9 Days}\\ \end{array}$

Explanation of Solution

  $\begin{array}{l}\text{1}\text{. Days' sales in inventory for Samsung company will be calculated as follow;}\\ \text{Days' sales in inventory = }\frac{\text{Ending Inventory}}{\text{Cost of sale}}\text{ x 365}\\ \text{For current year;}\\ \text{Cost of sale is given = \$137696309}\\ \text{Ending Inventory is given = \$19134868}\\ \text{Now, let's put values in above given formula;}\\ \text{Days' sales in inventory for current year = }\frac{\text{\$19134868}}{\text{\$137696309}}\text{ x 365}\\ =\text{ 50}\text{.72 Days or 51 Days}\\ \\ \text{For one year prior;}\\ \text{Cost of sale is given = \$126651931}\\ \text{Ending Inventory is given = \$17747413}\\ \text{Now, let's put values in above given formula;}\\ \text{Days' sales in inventory for one year prior = }\frac{\text{\$17747413}}{\text{\$126651931}}\text{ x 365}\\ =\text{ 51}\text{.15 Days or 51 Days}\\ \end{array}$

  $\begin{array}{l}\text{2}\text{. Days' sales in inventory for Apple company will be calculated as follow;}\\ \text{Days' sales in inventory = }\frac{\text{Ending Inventory}}{\text{Cost of sale}}\text{ x 365}\\ \text{For current year;}\\ \text{Cost of sale is given = \$106606}\\ \text{Ending Inventory is given = \$1764}\\ \text{Now, let's put values in above given formula;}\\ \text{Days' sales in inventory for current year = }\frac{\$1764}{\$106606}\text{ x 365}\\ =\text{ 6}\text{.04 Days or 6 Days}\\ \\ \text{For one year prior;}\\ \text{Cost of sale is given = \$87846}\\ \text{Ending Inventory is given = \$791}\\ \text{Now, let's put values in above given formula;}\\ \text{Days' sales in inventory for one year prior = }\frac{\$791}{\$87846}\text{ x 365}\\ =\text{ 3}\text{.29 Days or 3 Days}\\ \end{array}$

  $\begin{array}{l}\text{3}\text{. Days' sales in inventory for Google company will be calculated as follow;}\\ \text{Days' sales in inventory = }\frac{\text{Ending Inventory}}{\text{Cost of sale}}\text{ x 365}\\ \text{For current year;}\\ \text{Cost of sale is given = \$25858}\\ \text{Ending Inventory is given = \$426}\\ \text{Now, let's put values in above given formula;}\\ \text{Days' sales in inventory for current year = }\frac{\$426}{\$25858}\text{ x 365}\\ =\text{ 6}\text{.01 Days or 6 Days}\\ \\ \text{For one year prior;}\\ \text{Cost of sale is given = \$20634}\\ \text{Ending Inventory is given = \$505}\\ \text{Now, let's put values in above given formula;}\\ \text{Days' sales in inventory for one year prior = }\frac{\$505}{\$20634}\text{ x 365}\\ =\text{ 8}\text{.93 Days or 9 Days}\\ \end{array}$

Conclusion

Thus above calculated are the days’ in sales for each company.

Requirement 2;

To determine

To analyse:

Analysis and interpretation of inventory turnover ratio ** days’ in sales in inventory

Answer to Problem 9BTN

Solution:

Inventory turnover ratio of Samsung Company has declined from prior year which means operational efficiency of Samsung company has been declined. When we see performance of apple and Google companies then same trend can be seen because inventory turnover ratio of Apple and Google companies also has been declined in current year in compare to last year.

So we can say that capacity of converting inventory into sales has been declined in current year for all three companies due to decreased inventory turnover ratio.

For Samsung company days’ sales in inventory have been decreased in current year which is good symbol because lower the days better it is. But in case of Apple and Google company we see that days’ sales in inventory has been increased in current year which is not a good symbol because higher days’ sales in inventory means a company is not more efficient in selling its inventory.

Explanation of Solution

First of all let’s combine results of inventory turnover and days’ sales in inventory together to better analysis;

	Inventory turnover ratio		Days’ sales in inventory
	Current year	One year prior	Current year	One year prior
Samsung company	7.47 times	7.57 times	50.72 days	51.15 days
Apple company	83.45 times	112.12 times	6.04 days	3.29 days
Google company	55.55 times	76.42 times	6.01 days	8.93 days

So on the basis of above given figures it is clear that inventory turnover ratio of Samsung company have declined from prior year which means operational efficiency of Samsung company has been declined. When we see performance of apple and Google companies then same trend can be seen because inventory turnover ratio of Apple and Google companies also has been declined in current year in compare to last year.

So we can say that capacity of converting inventory into sales has been declined in current year for all three companies due to decreased inventory turnover ratio.

As we know that low numbers of Days’ sales in inventory are better indicator of efficient selling process for a company. So on the basis of this rule we can say that for Samsung company it has been slightly improved because Days’ sales in inventory has been decreased in current year but in case of Apple and Google company we see that days’ sales in inventory has been increased in current year which is not a good symbol because higher days’ sales in inventory means a company is not more efficient in selling its inventory.

Conclusion

Thus above given is the analysis and interpretation of inventory turnover ratio & days’ in sales in inventory.