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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

Comparing inventory ratios for two companies

Target Corp. sells merchandise primarily through its retail stores. On the other hand, Amazon .com uses its e-commerce services, features, and technologies to sell its products through the Internet. Recent balance sheet inventory disclosures for Target and Amazon.com (in millons) are as follows:

  Target Amazon.com
Cost of merchandise sold $51,997 $71,651
Inventory end of year 8,601 10,243
Inventory, beginning of year 8,282 8,299
  1. a. Determine the inventory turnover for Target and Amazon.com Round to two decimal places.
  2. b. Determine the days’ sales in inventory for Target and Amaxon.com. Use 365 days and round to one decimal place.
  3. c. Interpret your results.

(a)

To determine

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

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:

Days' sales in inventory=Days in accounting periodInventory turnover

To determine: the inventory turnover for Company T and Company A

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
the Days’ sales in inventory ratio Company T and Company A.

(c)

To determine

To interpret: the above calculated ratios.

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