Concept explainers
(a)
Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the inventory turnover ratio is as follows:
Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them. The formula to calculate the days’ sales in inventory ratio is as follows:
The inventory turnover and the number of days’ sales in inventory ratio for Company T and Company A.
(b)
To interpret: the above calculated ratios.
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Chapter 6 Solutions
FINANCIAL+MANG.-W/ACCESS PRACTICE SET
- Using Inventory Analysis ToolsAutoZone and O'Reilly are two competitors in the retail automotive parts industry. AutoZone O'Reilly Average 2015 Inventory $3,330,863 $2,642,897 2015 Sales 10,587,339 8,366,673 2015 Cost of goods sold 4,860,309 3,804,031 Average 2014 Inventory $3,050,552 $2,514,913 2014 Sales 9,875,312 7,616,080 2014 Cost of goods sold 4,540,406 3,507,180 Use the information above to compute the companies' gross profit margin and days inventory outstanding for both years.Round answers to one decimal place (ex: 0.2345 = 23.5%). Gross Profit Margin AutoZone O'Reilly 2015 Answer Answer 2014 Answer Answer Round to answers to one decimal place. Days Inventory Outstanding AutoZone O'Reilly 2015 Answer Answer 2014 Answer Answerarrow_forwardSuppose this information (in millions) is available for the Automotive and Other Operations Divisions of General Motors Corporation for a recent year, General Motors uses the LIFO inventory method. Beginning inventory Ending inventory LIFO reserve Current assets Current liabilities Cost of goods sold Sales revenue (a) Calculate the inventory turnover and days in inventory. (Round answers to 1 decimal place, e.g. 5.1) Inventory turnover $12,870 15,760 1,406 62.567 70,300 160,328 181,360 Days in inventory times daysarrow_forwardUsing Inventory Analysis Tools AutoZone and O'Reilly are two competitors in the retail automotive parts industry. AutoZone O'Reilly Average 2015 Inventory $3,290,867 $2,602,901 2015 Sales 10,265,117 8,044,451 2015 Cost of goods sold 4,860,309 3,804,031 Average 2014 Inventory $3,010,556 $2,474,917 2014 Sales 9,553,090 7,293,858 2014 Cost of goods sold 4,540,406 3,507,180 Use the information above to compute the companies' gross profit margin and days inventory outstanding for both years. Round answers to one decimal place (ex: 0.2345 = 23.5%). Gross Profit Margin AutoZone O'Reilly 2015 2014 Round to answers to one decimal place. Days Inventory Outstanding O'Reilly AutoZone 2015 2014arrow_forward
- Computing and Evaluating Inventory and PPE Turnovers Intel Corporation reports the following financial statement amounts in its 10-K reports. Cost of $ millions Sales Goods Sold Inventories 2016 $95,019 $24,501 $5,553 25,096 6,983 29,162 7,253 2017 100,418 2018 113,357 a. Compute the inventory and PPE turnover ratios for both 2017 and 2018. Note: Do not round until your final answer. Note: Round your final answers to one decimal place (for example, enter 6.8 for 6.77555). Inventory turnover PPE turnover 2017 Inventory turnover PPE turnover Plant, Property and Equipment, Net $36,171 41,109 48,976 2018 b. What changes are evident in the turnover rates of Intel for these years? < +arrow_forwardCalculating the CCC from the Financial Statement The following data are taken from the financial statement: Annual Sales ( on Credit ) 1,216,666 Cost of Goods Sold 1,013,889 Average Inventory 250,000 Average Accounts Receivable 300,000 Average Accounts Payable 150,000 COMPUTE FOR THE FOLLOWING and interpret your answer: 1. DIO stands for Days Inventory Outstanding 89.99999014 DIO= (Ave. Inventory/Cost of Goods Sold)*365 =(250,000/1,013,889)*365 =89.99 or 90 days It takes the company approximately 90 days to turn inventory into sales 2. DSO stands for Days Sales Outstanding 90.00004932 DSO=(Ave. Accts. Receivables/Total Credit Sales)*365 =(300,000/1,216,666)*365 =90 days #NAME? 3. DPO stands for Days Payable Outstanding 53.99999408 DPO=(Ave. Accts. Payables/Cost of Goods Sold)*365 =(150,000/1,013,889)*365 =53.99 or 54 days It takes the company approximately 54 days to pay its invoices 4.CASH CONVERSION CYCLE 126.0000454 CCC= DIO + DSO - DPO = 90+90-54 = 126 It takes the company…arrow_forwardIntel Corporation reports the following financial statement amounts in its 10-K reports. $ millions Sales Goods Sold Inventories 2016 $95,019 $24,501 2017 100,418 25,096 2018 113,357 29,162 Cost of Inventory turnover PPE turnover a. Compute the inventory and PPE turnover ratios for both 2017 and 2018. Note: Do not round until your final swer. Note: Round your final answers to one decimal place (for example, enter 6.8 for 6.77555). 2017 $5,553 6,983 7,253 0 0 Plant, Property and Equipment, Net 2018 $36,171 41,109 48,976 0 0arrow_forward
- Calculate the average inventory (in $) and inventory turnover ratio for the given company. (Round the inventory turnover ratio to one decimal place.) Company BeginningInventory EndingInventory AverageInventory Cost ofGoods Sold InventoryTurnover a hardware store $317,230 $300,060 $ $4,956,470arrow_forwardPerez Corporation has the following financial data for the years 20X1 and 20X2: Sales Cost of goods sold Inventory 20X1 20X2 20X1 $ 5,221,000 3,632,000 454,000 a. Compute the inventory turnover for each year using the formula Sales/Inventory. Note: Round your answers to 1 decimal place. Inventory Turnover Ratio times times 20X2 $ 6,578,000 4,862,000 572,000 b. Compute inventory turnover based on an alternative calculation that is used by many financial analysts, Cost of goods sold/Inventory, for each year. Note: Round your answers to 1 decimal place.arrow_forwardSuppose at December 31 of a recent year, the following information (in thousands) was available for sunglasses manufacturer Oakley Inc.: ending inventory $155,614; beginning inventory $124,364; cost of goods sold $356,537 and sales revenue $791,307. Calculate the inventory turnover for Oakley, Inc. (Round inventory turnover to 2 decimal places, e.g. 5.12.) Inventory turnover times SHOW LIST OF ACCOUNTS LINK TO TEXT INTERACTIVE TUTORIAL Calculate the days in inventory for Oakley, Inc. (Round days in inventory to 0 decimal places, e.g. 125.) Days in inventory daysarrow_forward
- Carla Vista Enterprises reported the following information for 2014: Beginning inventory $ 37,760 Cost of goods sold 476,720 Ending inventory 53,100 Net income 32,745 Net sales 885,000 Operating expenses 259,600 Sales revenue 902,700 Compute each of the following ratios: (Round answers to 1 decimal place, e.g. 52.7. Use 365 days for calculation.) (1) Gross profit rate enter percentages % (2) Inventory turnover enter ratio in number of times times (3) Days in inventory enter a number of days days (4) Profit margin enter percentages %arrow_forwardRequired information [The following information applies to the questions displayed below.] Lewis Incorporated and Clark Enterprises report the following amounts for the year. Inventory (beginning) Inventory (ending) Purchases Purchase returns. Lewis Lewis $ 30,000 24,000 355, 200 21,000 Clark 3. Calculate the average days in inventory for each company. (Round your intermediate calculations to 1 decimal place.) Clark $ 56,000 66,000 Average Days in Inventory 185,800 66,000 = = days daysarrow_forwardLewis Incorporated and Clark Enterprises report the following amounts for the year. Inventory (beginning) Inventory (ending) Purchases Purchase returns Required: Lewis $25,000 Clark $51,000 19,000 61,000 276,200 244,600 16,000 61,000 1. Calculate cost of goods sold for each company. 2. Calculate the inventory turnover ratio for each company. 3. Calculate the average days in inventory for each company. 4. Which company appears to be managing its inventory more efficiently? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Calculate cost of goods sold for each company. Beginning inventory Cost of goods available for sale Cost of goods sold Lewis Clarkarrow_forward
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