Question

5. Boateng Wholesale Ltd. is based in Accra, Ghana. Its sales, cost of goods

sold, and inventory amounts for 2018 and 2019 are shown below. (Currency in

Ghanaian cedi, GH₵) (20%)

2018 2019

Sales revenue                             GH₵ 200,000                 GH₵ 180,000

Cost of goods sold                           100,000                       91,000

Beginning inventory                          29,000                       21,000

Ending inventory                               21,000                              5,000

Instructions:

1. Determine the inventory turnover and resident period for 2018 and 2019.
2. Give your evaluation on the changes in the amount of Boateng’s inventory, the inventory turnover and resident period, and the amount of sales across the two years.

Answer 1

	2018	2019
Sales Revenue	GHC 200,000	GHC 180,000
Cost of goods sold	GHC 100,000	GHC 91,000
Beginning Inventory	GHC 29,000	GHC 21,000
Ending Inventory	GHC 21,000	GHC 5,000
Average Inventory[(Beginning Inventory+Ending Inventory)/2]	GHC 25,000	GHC 13,000
Inventory Turnover(Cost of goods sold / Average Inventory)	4	7
Resident Period(365 days / Inventory Turnover)	91.25 days or 91 days	52.14 days or 52 days
The Ending Inventory has decreased in 2019 as compared to 2018 because the company is now selling it's inventory more effectively as compared to the previous years
As a result of decrease in Inventory level the Inventory Turnover has also increased quite significantly and the Inventory Resident period has decreased from 91 days in 2018
to 52 days in 2019 which shows that the goods are selling faster(in less numer of days) and thus the it also reduces the storage costs.