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Inventory analysis QT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions): a. Determine for both companies (1) the inventory turnover and (2) the number of days’ sales in inventory. Round to one decimal place. b. Interpret the inventory ratios in the context of both companies’ operating strategies.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 17, Problem 12E
Textbook Problem
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Inventory analysis

QT, Inc. and Elppa Computers, Inc. compete with each other in the personal computer market. QT assembles computers to customer orders, building and delivering a computer within four days of a customer entering an order online. Elppa, on the other hand, builds computers for inventory prior to receiving an order. These computers are sold from inventory once an order is received. Selected financial information for both companies from recent financial statements follows (in millions):

Chapter 17, Problem 12E, Inventory analysis QT, Inc. and Elppa Computers, Inc. compete with each other in the personal

  1. a. Determine for both companies (1) the inventory turnover and (2) the number of days’ sales in inventory. Round to one decimal place.
  2. b. Interpret the inventory ratios in the context of both companies’ operating strategies.

a) (1)

To determine

Compute inventory turnover ratio.

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

Inventory turnover=Cost of goods soldAverage inventory

Compute inventory turnover ratio for QT.

Inventory turnover=Cost of goods soldAverage inventory=

b)

To determine

Conclude Position of inventory. 

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Chapter 17 Solutions

Financial Accounting
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