Question

In: Accounting

The following is information for Palmer Co. 2017 2016 2015 Cost of goods sold $ 563,825...

The following is information for Palmer Co.

	2017		2016		2015
Cost of goods sold	$	563,825	$	346,650	$	311,300
Ending inventory		104,400		94,750		99,500

Use the above information to compute inventory turnover for 2017 and 2016, and its days' sales in inventory at December 31, 2017 and 2016.

Expert Solution

Solution :

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Day's Sales in Inventory = 365 Days / Inventory Turnover Ratio

(a) Inventory Turnover Ratio and its days sales in Inventory for 2017 :

	Numerator	/	Denominator	=	Ratio
Inventory Turnover Ratio	$ 563,825	/	$ 99,575	=	5.66 Times
Day's Sales in Inventory*	365 Days	/	5.66	=	64.49 Days

(b) Inventory Turnover Ratio and its days sales in Inventory for 2016 :

	Numerator	/	Denominator	=	Ratio
Inventory Turnover Ratio	$ 346,650	/	$ 97,125	=	3.57 Times
Day's Sales in Inventory	365 Days	/	3.57	=	102.24 Days

Working :

(a)

Average Inventory = (Opening Inventory + Ending Inventory) / 2

= ($ 94,750 + $ 104,400) / 2

= $ 99,575

(b)

Average Inventory = (Opening Inventory + Ending Inventory) / 2

= ($ 99,500 + $ 94,750) / 2

= $ 97,125

* if table doesn't accept Day's Sales in Inventory in Two decimal place please round off it to One Decimal Place.

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ekkarill92 answered 2 years ago

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