a.
Calculate the inventory turnover for Company C, Company W and Company JCP.
a.
Explanation of Solution
Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the inventory turnover ratio is as follows:
The inventory turnover ratio for Company C is calculated as follows:
Working note (1):
The average inventory is calculated as follows:
The inventory turnover ratio for Company W is calculated as follows:
Working note (2):
The average inventory is calculated as follows:
The inventory turnover ratio for Company JCP is calculated as follows:
Working note (3):
The average inventory is calculated as follows:
The inventory turnover ratio is calculated by dividing cost of goods sold by average inventory during the period. The average inventory is calculating by dividing beginning inventory and ending inventory by 2. The inventory turnover ratio is an important measure as to how efficient is the management is good at managing inventory and achieving sales from it.
The inventory turnover of Company C is 12.6 Times, for Company W is 8.7 Times & for Company A is 3.6 Times.
b.
Calculate the number of Days’ sales in inventory for all three Companies.
b.
Explanation of Solution
Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them. The formula to calculate the days’ sales in inventory ratio is as follows:
The Days’ sale in inventory ratio for Company C is calculated as follows:
The Days’ sales in inventory ratio for Company W are calculated as follows:
The Days’ sales in inventory ratio for Company JCP is calculated as follows:
The Days’ sales in inventory ratio are calculated by dividing days in accounting period by inventory turnover ratio. The Days’ sale in inventory ratio is an important measure to know how long the company is holding the inventory before selling when compared to its peers.
The Days’ sales in inventory of Company C, Company W and Company JCP are 28.9 days, 42 days and 101.3 days.
c.
Interpret the results based on each company’s merchandise concept.
c.
Explanation of Solution
- The inventory turnover ratio and number of days’ sales in inventory of all the three companies reflect the merchandising approaches of all companies. Company C is a club warehouse and it has approach of holding only items which are quickly sold. Most of the items are sold in bulk at very attractive prices.
- In case of company W, it has a traditional discounter approach. Even though it has attractive pricing, the inventory movement is slower than in the case of company C.
- In the case of company JCP, it is a traditional department store. It offers a wide collection of specialty and unique goods that are specifically designed and it will not necessary appeal to the mass market. Therefore, the movement is slower than other two companies yet it has highest margin.
Want to see more full solutions like this?
Chapter 7 Solutions
Financial Accounting
- The general merchandise retail industry has a number of segments represented by the following companies: For a recent year, the following cost of goods sold and beginning and ending inventories are provided from corporate annual reports (in millions) for these three companies: a. Determine the inventory turnover ratio for all three companies. Round all calculations to one decimal place. b. Determine the number of days sales in inventory for all three companies. Use 365 days and round all calculations to one decimal place. c. Interpret these results based on each companys merchandising concept.arrow_forwardThe following selected information is taken from the financial statements of Arnn Company for its most recent year of operations: During the year, Arnn had net sales of 2.45 million. The cost of goods sold was 1.3 million. Required: Note: Round all answers to two decimal places. 1. Compute the current ratio. 2. Compute the quick or acid-test ratio. 3. Compute the accounts receivable turnover ratio. 4. Compute the accounts receivable turnover in days. 5. Compute the inventory turnover ratio. 6. Compute the inventory turnover in days.arrow_forwardLast year, Nikkola Company had net sales of 2,299,500,000 and cost of goods sold of 1,755,000,000. Nikkola had the following balances: Refer to the information for Nikkola Company above. Required: Note: Round answers to one decimal place. 1. Calculate the average inventory. 2. Calculate the inventory turnover ratio. 3. Calculate the inventory turnover in days. 4. CONCEPTUAL CONNECTION Based on these ratios, does Nikkola appear to be performing well or poorly?arrow_forward
- Cuneo Companys income statements for the last 3 years are as follows: Refer to the information for Cuneo Company above. Required: 1. Prepare a common-size income statement for Year 1 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.) 2. Prepare a common-size income statement for Year 2 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.) 3. Prepare a common-size income statement for Year 3 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.)arrow_forwardThe following data are taken from the general ledger and other records of Phoenix Products Co. on October 31, the end of the first month of operations in the current fiscal year: a. Prepare a statement of cost of goods manufactured. b. Prepare the cost of goods sold section of the income statement.arrow_forwardThe following revenue data were taken from the December 31, 2017, General Electric annual report (10-K): For each segment and each year, calculate intersegment sales (another name for transfer sales) as a percentage of total sales. Using Microsoft Excel or another spreadsheet application, create a clustered column graph to show the 2016 and 2017 percentages for each division. Comment on your observations of this data. How might a division sales manager use this data?arrow_forward
- Financial statement data for years ending December 31 for Holland Company follow: a. Determine the inventory turnover for 20Y4 and 20Y3. b. Determine the days sales in inventory for 20Y4 and 20Y3. Use 365 days and round to one decimal place. c. Does the change in inventory turnover and the days sales in inventory from 20Y3 to 20Y4 indicate a favorable or an unfavorable trend?arrow_forwardCost of goods sold and related items The following data were extracted from the accounting records of Harkins Company for the year ended April 30, 20Y8: Estimated returns of current year sales 11,600 Inventory, May 1, 20Y7 380,000 Inventory, April 30, 20Y8 415,000 Purchases 3,800,000 Purchases returns and allowances 150,000 Purchases discounts 80,000 Sales 5,850,000 Freight in 16,600 a. Prepare the Cost of goods sold section of the income statement for the year ended April 30, 20Y8, using the periodic inventory system. b. Determine the gross profit to be reported on the income statement for the year ended April 30, 20Y8. c. Would gross profit be different if the perpetual inventory system was used instead of the periodic inventory system?arrow_forwardCompute Altoona Companys (a) inventory turnover ratio and (b) number of days sales in inventory ratio, using the following information.arrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubManagerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College