Calm Day reported the following income statement for the year ended December 31, 2019: Requirements 1. Compute
Question:
Requirements
1. Compute Calm Day's inventory turnover rate for the year. (Round to two decimal places.)
2. Compute Calm Day's days' sales in inventory for the year. (Round to two decimal places.)
CALM DAY Income Statement Year Ended December 31, 2019 $ 128,000 Net Sales Revenue Cost of Goods Sold: $ 9,000 Beginning Merchandise Inventory Net Cost of Purchases 62,000 Cost of Goods Available for Sale 71,000 Less: Ending Merchandise Inventory 12,200 Cost of Goods Sold 58,800 Gross Profit 69,200 Operating Expenses 41,600 $ 27,600 Net Income
Step by Step Answer:
Requirement 1 Inventory turnover is 555 times for the year Calculations Average merchandise invent...View the full answer
Horngrens Financial And Managerial Accounting The Financial Chapters
ISBN: 9780134486840
6th Edition
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
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Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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