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: I n v e n t o r y T u r n o v e r R a t i o = C o s t o f g o o d s s o l d A v e r a g e i n v e n t o r y Note: Average inventory is calculated with the help of following formula: A v e r a g e i n v e n t o r y = ( B e g i n n i n g i n v e n t o r y + E n d i n g i n v e n t o r y ) 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: D a y s s a l e s i n i n v e n t o r y = 365 I n v e n t o r y T u r n o v e r R a t i o To calculate: The Inventory turnover rate and Days Sales in Inventory for Clear Communication

Question

Want to see the full answer?

Answer 1

Question

Chapter 6, Problem S6.10SE

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:

$I n v e n t o r y T u r n o v e r R a t i o = \frac{C o s t o f g o o d s s o l d}{A v e r a g e i n v e n t o r y}$

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

$A v e r a g e i n v e n t o r y = \frac{(B e g i n n i n g i n v e n t o r y + E n d i n g i n v e n t o r y)}{2}$

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:

$D a y s s a l e s i n i n v e n t o r y = \frac{365}{I n v e n t o r y T u r n o v e r R a t i o}$

To calculate: The Inventory turnover rate and Days Sales in Inventory for Clear Communication

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Chalmers Corporation operates in multiple areas of the globe, and relatively large price changes are common. Presently, the company sells 110,200 units for $50 per unit. The variable production costs are $20, and fixed costs amount to $2,079,500. Production engineers have advised management that they expect unit labor costs to rise by 10 percent and unit materials costs to rise by 15 percent in the coming year. Of the $20 variable costs, 25 percent are from labor and 50 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 12 percent. It is also expected that fixed costs will rise by 10 percent as a result of increased taxes and other miscellaneous fixed charges. The company wishes to maintain the same level of profit in real dollar terms. It is expected that to accomplish this objective, profits must increase by 8 percent during the year. Required: Compute the volume in units and the dollar sales level…

After describing a threat/risk in either the revenue cycle (i.e., in sales and cash collection activities) or the expenditure cycle (i.e., in purchases or cash disbursement activities). What are specific internal controls that might be applied to mitigate each of the threats we've identified?

Compare and contrast the procedures for lodging an objection in Jamaica with those of Trinidad and Tobago.