During the current year, Fargo Company had sales revenue of $145,000, of which 80% were credit sales.
Question:
During the current year, Fargo Company had sales revenue of $145,000, of which 80% were credit sales. Its cost of goods sold was 60% of its sales revenue. During the year, Fargo’s average inventory was $12,500 and its average net receivables were $9,300. Compute the inventory turnover and the receivables turnover of Fargo Company for the current year (assume a 365-day business year).
Step by Step Answer:
Inventory Turnover Average Inventory 1450...View the full answer
Intermediate Accounting
ISBN: 978-0324659139
11th edition
Authors: Loren A. Nikolai, John D. Bazley, Jefferson P. Jones
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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