In: Accounting
A- 10.5 Use the following information relating to Shana Company to calculate the inventory turnover ratio and the number of days’ sales in inventory ratio.
year | sales | cost of sales | average inventory |
2021 | 22000 | 16500 | 2400 |
2022 | 28000 | 21000 | 3000 |
2023 | 33000 | 24750 | 3500 |
2024 | 35000 | 26250 | 4000 |
Formula of inventory turnover ratio |
Inventory turnover ratio = cost of goods sold/average inventory |
calculation of inventory turnover ratio |
year 2021 cost of sale = 16500 |
average inventory = 2400 |
Inventory turnover ratio = 16500/2400 = 6.88 |
year 2022 cost of sale = 21000 |
average inventory = 3000 |
inventory turnover ratio = 21000/3000 = 7 |
year 2023 cost of sale = 24750 |
average inventory = 3500 |
inventory turnover ratio = 24750/3500 = 7.07 |
year 2024 cost of sale = 26250 |
average inventory = 4000 |
inventory turnover ratio = 26250/4000 = 6.56 |
number of days sale in inventory ratio = 365/inventory turnover ratio |
no of days in a year = 365 days |
year 2021 = 365/6.88 = 53.05 days |
year 2022 = 365/7 = 52 days |
year 2023 = 365/7.07 = 52.63 days |
year 2024 = 365/6.56 = 55.62 days |
answers are rounded off upto 2 decimal places