A company reports the following: Cost of goods sold ............ $558,000 Average inventory ................. 45,000 Determine (a)
Question:
A company reports the following:
Cost of goods sold ............ $558,000
Average inventory ................. 45,000
Determine
(a) The inventory turnover and
(b) The number of days’ sales in inventory. Round to one decimal place.
Step by Step Answer:
Accounting
ISBN: 9781337902687
28th Edition
Authors: Carl S. Warren, Christine Jonick, Jennifer Schneider
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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