Captain Geech Boating Company sells fishing boats to fishermen. Its beginning and ending inventories for 2012 are
Question:
Captain Geech Boating Company sells fishing boats to fishermen. Its beginning and ending inventories for 2012 are $462 million and $653 million, respectively. It had cost of goods sold of $1,578 million for the year ended December 31, 2012. Merchant Marine Company also sells fishing boats. Its beginning and ending inventories for the year 2012 are $120 million and $90 million, respectively. It had cost of goods sold of $1,100 million for the year ended December 31, 2012.
Required:
1. Calculate the inventory turnover and number of days’ sales in inventory for the two companies.
2. Interpretive Question: Are the results of these ratios what you expected? Which company is managing its inventory more efficiently?
Step by Step Answer:
1 2 The results of the ratios show that Captain Geech Boating ha...View the full answer
Accounting concepts and applications
ISBN: 978-0538745482
11th Edition
Authors: Albrecht Stice, Stice Swain
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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