Poston, Inc., and Victor Enterprises are competitors in the toy industry. Last year the companies' operations were
Question:
Poston, Inc., and Victor Enterprises are competitors in the toy industry. Last year the companies' operations were identical, the only difference between them being that Poston uses the last-in, first-out inventory costing method and Victor uses the first-in, first-out method. Inventory prices increased during the year. The two companies reported the following amounts in their financial statements.
____________________________________________Poston, Inc._______ Victor Enterprises
Sales revenue.................................................$17,000,000....................$17,000,000
Cost of goods sold..........................................$10,000,000.....................$ 9,500,000
Average inventory............................................$ 1,000,000....................$ 1,250,000
Required
a. Which company had a higher inventory turnover?
b. If all the companies' results were identical, including the number of items sold and the number remaining in inventory, why do their inventory turnover ratios differ? Should the difference influence your evaluation of the two firms?
Inventory Turnover RatioInventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...
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