Financial Accounting: Information for Decisions
8th Edition
ISBN: 9781259533006
Author: John J Wild
Publisher: McGraw-Hill Education
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Chapter 5, Problem 9BTN
1.
Summary Introduction
Concept introduction:
Inventory Turnover Ratio: Inventory Turnover Ratio is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:
Note: Average inventory is calculated with the help of following formula:
Day’s sales in inventory: Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated by using the following formula:
To calculate: The inventory turnover and days sales in inventory ratio for the company for two years.
1.
Expert Solution
Answer to Problem 9BTN
The inventory turnover and days sales in inventory ratios for the company for two years are as follows:
| Current year | One year prior | |
| Inventory Turnover Ratio | 7.04 | 7.47 |
| Days Sales in inventory | 52 | 49 |
Explanation of Solution
The inventory turnover and days sales in inventory ratios for the company for two years are calculated as follows:
| Korean won in millions | Current year | One year prior |
| Cost of Goods Sold (A) | 128,278,800 | 137,696,309 |
| Beginning Inventory (B) | 19,134,868 | 17,747,413 |
| Ending Inventory (C) | 17,317,504 | 19,134,868 |
| Average Inventory (D) = (B+C)/2 = | 18,226,186 | 18,441,141 |
| Inventory Turnover Ratio (E) = A/D = | 7.04 | 7.47 |
| Days Sales in inventory = 365 / E = | 52 | 49 |
2.
Summary Introduction
Concept introduction:
Inventory Turnover Ratio: Inventory Turnover Ratio is calculated by dividing the Cost of goods sold by average inventory. The formula of the Inventory Turnover Ratio is as follows:
Note: Average inventory is calculated with the help of following formula:
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:
To indicate: The comment on the findings.
2.
Expert Solution
Answer to Problem 9BTN
The efficiency of inventory management has decreased.
Explanation of Solution
The inventory turnover and days sales in inventory ratios for the company for two years are calculated as follows:
| Korean won in millions | Current year | One year prior |
| Cost of Goods Sold (A) | 128,278,800 | 137,696,309 |
| Beginning Inventory (B) | 19,134,868 | 17,747,413 |
| Ending Inventory (C) | 17,317,504 | 19,134,868 |
| Average Inventory (D) = (B+C)/2 = | 18,226,186 | 18,441,141 |
| Inventory Turnover Ratio (E) = A/D = | 7.04 | 7.47 |
| Days Sales in inventory = 365 / E = | 52 | 49 |
The inventory turnover has decreased and day’s sales in inventory ratio have increased in the current year and compared with the previous year. It indicates that the efficiency of inventory management has decreased.
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Students have asked these similar questions
The following data (in millions) were taken from recent annual reports of Apple Inc., a manufacturer of personal computers and related products, and Mattel Inc., a manufacturer of toys, including Barbie®, Hot Wheels®, and Disney Classics:
Apple
Mattel
Cost of merchandise sold
$140,089
$2,896
Inventory, end of year
2,349
588
Inventory, beginning of the year
2,111
562
a. Determine the inventory turnover for Apple and Mattel. Round to one decimal place.
Apple
Mattel
b. Would you expect Mattel’s inventory turnover to be higher or lower than Apple’s?
Clinton Company makes specialty cases for smart phones and other handheld devices. The company has experienced strong growth, and you are especially interested in how well Clinton is managing its inventory balances. You have collected the following information for the current year.
Inventory at the beginning of year
$ 1,555 million
Inventory at the end of year, before any adjustments
1,267 million
Total cost of goods sold, before any adjustments
17,844 million
The company values inventory using the LIFO cost flow assumption.
Instructions
Prepare a schedule (a computer worksheet would serve well) showing the impact of the following items on Clinton's inventory turnover.
a. Shipping contracts changed 2 months ago from f.o.b. shipping point to f.o.b. destination. At the end of the year, $5 million of products are en route to China (and will not arrive until after financial statements are released). Current inventory balances do not reflect this change in policy.
b. During…
Norwood Company makes miniature circuit boards that are components of wireless phones and personal organizers. The company has experienced strong growth, and you are especially interested in how well Norwood is managing its inventory balances. You have collected the following information for the current year.
Inventory at the beginning of year
$ 1,026,000
Inventory at the end of year, before any adjustments
1,007,000
Total cost of goods sold, before any adjustments
11,776,000
The company values inventory at lower-of-cost (using LIFO cost flow assumption)-or-market; use the cost-of-goods-sold method.
Instructions
a. Compute Norwood’s inventory turnover before any adjustment.
b. Recompute the inventory turnover after adjusting Norwood’s inventory information for the following items.
1. During the year, Norwood recorded sales and costs of goods sold on $22,000 of units shipped to various wholesalers on consignment. At year-end, none of these units have been sold…
Chapter 5 Solutions
Financial Accounting: Information for Decisions
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Ch. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - Prob. 13DQCh. 5 - Prob. 14DQCh. 5 - Prob. 15DQCh. 5 - Prob. 16DQCh. 5 - Prob. 17DQCh. 5 - Prob. 1QSCh. 5 - Prob. 2QSCh. 5 - Prob. 3QSCh. 5 - Prob. 4QSCh. 5 - Prob. 6QSCh. 5 - Prob. 7QSCh. 5 - Prob. 8QSCh. 5 - Prob. 9QSCh. 5 - Prob. 10QSCh. 5 - Prob. 11QSCh. 5 - Refer to the information in QS 5-10 and assume the...Ch. 5 - Prob. 13QSCh. 5 - Prob. 14QSCh. 5 - Prob. 15QSCh. 5 - Prob. 16QSCh. 5 - Prob. 17QSCh. 5 - Identify the inventory costing method best...Ch. 5 - Prob. 19QSCh. 5 - Prob. 20QSCh. 5 - Prob. 21QSCh. 5 - Prob. 22QSCh. 5 - International accounting standards C1 C2 P2 Answer...Ch. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Laker Company reported following January purchases...Ch. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - Prob. 10ECh. 5 - Prob. 11ECh. 5 - Inventory turnover and days sales in inventory A3...Ch. 5 - Periodic: Cost flow assumptions P1 Lopez Company...Ch. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Estimating ending inventory—gross profit method...Ch. 5 - Prob. 1PSACh. 5 - Prob. 2PSACh. 5 - Prob. 3PSACh. 5 - Prob. 5PSACh. 5 - Prob. 6PSACh. 5 - Prob. 7PSACh. 5 - QP Corp. sold 4,000 units of its product at $50...Ch. 5 - Prob. 9PSACh. 5 - Prob. 10PSACh. 5 - Prob. 1PSBCh. 5 - Prob. 2PSBCh. 5 - Prob. 3PSBCh. 5 - Prob. 4PSBCh. 5 - Prob. 5PSBCh. 5 - Prob. 6PSBCh. 5 - Prob. 7PSBCh. 5 - Prob. 8PSBCh. 5 - Prob. 9PSBCh. 5 - Prob. 10PSBCh. 5 - Santana Rey of Business Solutions is evaluating...Ch. 5 - Prob. 5.2SPCh. 5 - Prob. 2BTNCh. 5 - Golf Challenge Corp. is a retail sports store...Ch. 5 - Prob. 4BTNCh. 5 - Prob. 7BTNCh. 5 - Prob. 8BTNCh. 5 - Prob. 9BTN
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