Information on the activities of Strategy Furniture Ltd. is as follows: Required a. Do a trend analysis
Question:
Information on the activities of Strategy Furniture Ltd. is as follows:
Required
a. Do a trend analysis of the inventory turnover for each year. Also calculate the days to sell inventory ratio for the respective years.
b. Is Strategy Furniture Ltd. managing its inventory efficiently? Do you have enough information to answer this question? If not, what else do you need to know?
c. Provide an example of a situation where management may deliberately increase inventory turnover, but not be operating in the company’s best long-term interests.
2016 2017 2018 2019 2020 Cost of goods sold $1,948,492 $1,856,820 $1,644,300 $1,403,780 388,104 $1,250,340 192,675 487,289 268,203 219,940 Average inventory
Step by Step Answer:
a Inventory Turnover Number of days 2016 1948492 487289 400 365 400 913 days 2017 1856820 388104 478 ...View the full answer
Understanding Financial Accounting
ISBN: 9781119406921
2nd Canadian Edition
Authors: Christopher D. Burnley
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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