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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Inventory analysis
The following data were extracted from the income statement of Brecca Systems Inc.:


a.Determine for each year (1) the inventory turnover and (2) the days' sales in inventory. Round to nearest dollar and one decimal place.
b. What conclusions can l>e drawn from these data concerning the inventories?

To determine

Concept Introduction:

Inventory Turnover Ratio: Inventory turnover ratio means the amount of time the sale is in the inventory. It tells about the firm's inventory position in comparison of the cost of goods sold.

The day's sales in inventory: It means in a year, the amount of time the inventory is sold in a year. It means that 365/ day inventory turnover ratio.

Requirement-1:

To Calculate:

Inventory turnover ratio and the day's sales in inventory.

Explanation
    ParticularsCurrentPrevious
    Opening Inventory(A)420000400000
    Closing Inventory (B)550000420000
    Sales (C)
To determine

Concept Introduction:

Inventory Turnover Ratio: Inventory turnover ratio means that in how much time our sale is of our inventory. It tells about the firm's inventory position in comparison of the cost of goods sold.

The day's sales in inventory: It means in a year how much time our inventory takes to get sold. It means that 365/ inventory turnover ratio.

Requirement-2:

To Identify:

Conclusion can be drawn from these data concerning the inventory.

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