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In: Accounting

Rodgers Industries Inc. has completed its fiscal year on December 31. The auditor, Josh McCoy, has...

Rodgers Industries Inc. has completed its fiscal year on December 31. The auditor, Josh McCoy, has approached the CFO, Aaron Mathews, regarding the year-end receivables and inventory levels of Rodgers Industries. The following conversations takes place: Josh: We are beginning our audit of Rodgers Industries and have prepared ratio analysis to determine if there have been significant changes in operations or financial position. This helps us guide the audit process. This analysis indicates that the inventory turnover has decreased from 11 to 7. Could you explain this change in operations?

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Expert Solution

The issue here is that the Inventory Turnover has decreased from 11 to 7.

The reply from Josh to clarify the decrease in Inventory turnover would be " We are not worried on the inventory turnover decrease as that is expected as per our sales plan. We are having an agressive sales Plan from next month. Rodgers Industries has tied up with Start Market , the biggest Retail Chain to sell our products through the chain across the country. There is a big order on that account starting from next month , so we have stocked up our FG inventory to cater to the demand. The production schedule for next month is also very high due to this added demand , so we had to increase our raw materials and consumables stock for that. These two factors have led to the big increase in closing inventory and decrease in inventory turnover. But this is a temporary blip, with the increase in revenue from next month , the ratio will again even out.

ekkarill92 answered 1 year ago
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