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 the 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 using the following formula: D a y S a l e s i n I n v e n t o r y = I n v e n t o r y * 365 C o s t o f G o o d s S o l d To Choose: The measure useful in evaluating efficiency in the management of inventories.

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Chapter 9, Problem 5SEQ

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 the Average inventory. The formula of the Inventory Turnover Ratio is as follows:

Inventory Turnover Ratio=Cost of goods soldAverage inventory

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

Average inventory=(Beginning inventory + Ending inventory)2

Day's sales in inventory:

Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated using the following formula:

Day Sales in Inventory = Inventory *365Cost of Goods Sold

To Choose:

The measure useful in evaluating efficiency in the management of inventories.

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