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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

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

Inventory turnover

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
  1. a. Determine the inventory turnover for Apple and Mattel. Round to one decimal place.
  2. b. Would you expect Mattel’s inventory turnover to be higher or lower than Apple’s? Why?

(a)

To determine

Liquidity ratios: Liquidity explains the extent of cash’s nearness to assets and liabilities. It explains how easily assets can be converted into cash. Following are the types of ratios that help to find liquidity position of a company.

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:

Inventory turnover=Cost of goods soldAverage inventory

To determine: the inventory turnover for Company A and Company M.

Explanation

The inventory turnover ratio is calculated by dividing cost of goods sold by average inventory during the period. The average inventory is calculating by dividin...

(b)

To determine

To explain: if the M inventory turnover is expected to be higher or lower than Company A and state the reasons.

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