Question

1. Inventory Turnover and Days' Sales in Inventory

   Financial statement data for years ending December 31 for Salsa Company follow:

   	20Y7				20Y6
   Cost of merchandise sold	$2,912,700				$3,009,790
   Inventories:
   Beginning of year	489,000				481,900
   End of year	533,000				489,000

   a. Determine the inventory turnover for 20Y7 and 20Y6. Round to one decimal place.

   	Inventory Turnover
   20Y7	fill in the blank 1
   20Y6	fill in the blank 2

   b. Determine the days' sales in inventory for 20Y7 and 20Y6. Assume 365 days a year. Round interim calculations and final answers to one decimal place.

   	Days' Sales in Inventory
   20Y7	fill in the blank 3 days
   20Y6	fill in the blank 4 days

   c. Does the change in the inventory turnover and the days' sales in inventory from 20Y6 to 20Y7 indicate a favorable or an unfavorable trend?
   

Check My Work

Periodic Inventory by Three Methods

The units of an item available for sale during the year were as follows:

Jan. 1	Inventory	1,080 units @ $124
Feb. 17	Purchase	1,440 units @ $125
July 21	Purchase	1,655 units @ $126
Nov. 23	Purchase	1,145 units @ $126

There are 1,220 units of the item in the physical inventory at December 31. The periodic inventory system is used.

a. Determine the inventory cost by the first-in, first-out method.
$fill in the blank 1

b. Determine the inventory cost by the last-in, first-out method.
$fill in the blank 2

c. Determine the inventory cost by the weighted average cost method. Do not round intermediate calculation and round final answer to the nearest whole dollar.
$fill in the blank 3

Answer 1

a)	Inventory Turnover		=	Cost of Goods Sold / Average Inventory
	20Y7		=	$ 2912700 / (($ 489000 + $ 533000) / 2)
			=	5.7
	20Y6		=	$ 3009790 / (($ 481900 + $ 489000) / 2)
			=	6.2
b)	Days' sales in inventory		=	365 days / Inventory Turnover
	20Y7		=	365 days / 5.7
			=	64.0	days
	20Y6		=	365 days / 6.2
			=	58.9	days
c)	Both of the ratio indicates an unfavorable trend

Particulars		Units	Rate	Amount
Beginning inventory		1080	$ 124.00	$ 1,33,920.00
Purchases:
Feb-17		1440	$ 125.00	$ 1,80,000.00
Jul-21		1655	$ 126.00	$ 2,08,530.00
Nov-23		1145	$ 126.00	$ 1,44,270.00
Cost of Goods available		5320	$ 125.32	$ 6,66,720.00
FIFO
Ending inventory from:
Nov-23		1145	$ 126.00	$       1,44,270
Jul-21		75	$ 126.00	$            9,450
Ending Inventory		1220		$      1,53,720
LIFO
Ending inventory from:
Beginning Inventory		1080	$ 124.00	$       1,33,920
Feb-17		140	$ 125.00	$          17,500
Ending Inventory		1220		$      1,51,420
Weighted Average
Ending Inventory		1220	$ 125.32	$      1,52,894