Norton Industries recorded total cost of goods sold for 20X2 of $6.5 million. Norton had the following
Question:
Norton Industries recorded total cost of goods sold for 20X2 of $6.5 million. Norton had the following inventory balances for the months indicated (end of period balances):
a. Compute inventory turnover for Norton using the following methods to calculate the inventory figure:
1. End of year
2. Average of the beginning and end of year
3. Average of the ends of quarters (use the five quarter ends)
4. Average of the ends of months (use the 13 month ends)
b. Which method provides the most accurate picture of Norton’s inventory management? Why?
c. Which method do you think Norton is currently using?Why?
In Millions In Millions December 20X1 January 20X2 February 20X2 March 20X2 April 20X2 May 20X2 June 20X2 $1.20 1.65 1.70 1.38 1.66 1.93 1.41 July 20X2 August 20X2 September 20X2 October 20X2 November 20X2 December 20X2 $1.81 1.78 1.26 1.61 1.63 1.19
Step by Step Answer:
a 1 65 119 546x 2 65 1195 544x 3 65 1288 505x 4 65 1555 418x b Ther...View the full answer
Related Video
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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