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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

a. Why is a high inventory turnover considered to be a positive indicator?

b. Is it possible to have a high inventory turnover and a high number of days’ sales in inventory? Why?

To determine

Inventory Turnover Ratio

This ratio is a financial metric used by a company to quantify the number of times inventory is used or sold during the accounting period.

Formula: Inventoryturnover =CostofgoodssoldAverageinventory

a and b.

To determine: the indication of inventory turnover ratio

Explanation

Explanation:

a.

High inventory turnover ratio reduces the amount of investment made in the inventories and thus, funds are freeing and used for more advantage. Storage costs, administrative expenses, and the losses are those costs caused due to obsolescence and other changes in the price. The prices are kept minimum.

b.

The inventory turnover ratio relates to the amount of “turnover” occurred during the year...

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